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A Banana Republic By 2012?

By Paul Craig Roberts | InformationClearingHouse.info | Mar. 02, 2009

Change for the Worse

President Obama has presented the most irresponsible budget in US history.  His fiscal year 2010 budget projects federal spending of $3.5 trillion and a federal deficit of $1.75 trillion. In other words, 50 percent of the government’s budget consists of red ink.

And Americans are angry that sub-prime borrowers took mortgages they couldn’t afford.

The bald fact is that the US government is going to have to borrow--or print--half of the money it intends to spend in Obama’s first budget. This fact has fallen through the cracks as New York Times headlines proclaim “A Bold Plan Sweeps Away Reagan Ideas.” It certainly does sweep away Reagan ideas. No Reagan budget ever presumed that the federal government could borrow half of its annual expenditures. Indeed, Obama’s budget deficit for 2010 alone exceeds the totality of “Reagan Deficits” for Reagan’s two terms of office.

As presidential budgets are marketing devices rather than financial statements, they are imbued with optimistic assumptions. Obama’s budget is based on optimistic assumptions about the extent of decline in GDP. A more realistic projection of GDP decline would reveal that Obama’s budget is the first since World War II in which more than half of the government’s expenditures must be financed by red ink. I suspect that the red ink component of the FY 2010 budget will surpass World War II budgets.

To whom can the US government turn for $1.75 trillion for FY 2010, on top of $1.2 trillion for FY 2009?

Not to taxpayers. Obama’s net tax increase comes to $170 billion over 10 years, or $17 billion a year, a drop in the bucket. A supply-side economist could have told him that not even these paltry revenues will be realized.

Not to private savers. Americans are over their heads in debts.

Not to foreigners. Thanks to Clinton/Bush financial deregulation and Wall Street and bankster greed, the rest of the world is in financial turmoil and hasn’t $1.75 trillion in savings to lend. Possibly, the stock market will collapse further, and whatever remaining wealth Americans have will flow into “safe” US Treasuries.

The only other alternative is the printing press. Printing press finance would destroy the dollar as reserve currency and ignite high inflation. The US would be unable to pay for its imports, and Americans whose incomes do not rise with the rate of inflation would be plowed under.

This prospect is not a “war on terror” scare tactic like “anthrax,” “weapons of mass destruction,” “al Qaeda connections,” and “Iranian nukes.”

The economic catastrophe that the US faces is very real. But there is no awareness of this reality in Obama’s budget. The crux of Obamanomics is the assumption that the economy can run forever on consumer loans, if we can just get the banks to lend, and the federal government can run forever on loans from China, Japan,and Saudi Arabia.

Obama is requesting $130 billion for wars in Iraq and Afghanistan during 2010 plus a $75 billion supplemental request for the wars during 2009. This $205 billion is on top of $534 billion for the Pentagon in 2010, for total military spending of $739 billion.

The Chinese government’s budget shows China’s military spending at $59 billion in 2008. (The Pentagon claims Chinese military spending is between $97 billion and $139 billion.) Russia’s military spending in 2009 is projected to be about $50 billion.

In the midst of the greatest economic crisis in US history when trillions of dollars are being added to US national debt, Obama’s budget spends more on two pointless wars than the total military spending of China and Russia combined. Obama’s wars serve only the profits of the military/security complex and the promotion rate of military officers. The longer the wars continue, the larger the number of officers who can retire at higher ranks, thus further swelling future annual deficits and the national debt.

Moreover, as is becoming apparent, the Bush/Obama war in Afghanistan cannot be fought without fighting a war in Pakistan.

As if this isn’t enough war, Obama parrots Dick Cheney’s charge, totally unsupported by any evidence, that Iran is making nuclear weapons. The chances are high that the new White House Moron will have us at war in Afghanistan, Pakistan, Iran, and Iraq. As Obama’s wars expand, the $205 billion for war in Iraq and Afghanistan will become $400 billion annually and then $600 billion annually.

Obama’s “troop withdrawal” from Iraq has proved to be just another con job. Obama has announced that the withdrawal doesn’t include the 50,000 US soldiers who will remain in Iraq indefinitely--like the US troops that have been kept in Japan and Germany for 64 years and in Korea since the early 1950s,

Meanwhile Medicare is on the ropes. The latest Medicare trustees report says that Medicare’s funds for hospital payments will be exhausted in 10 years. To make ends meet, Obama proposes cutting payments to Medicare providers.

Obama’s plan is to make doctors and patients pay for Medicare. One way to get National Health is to make it uneconomic for private health care to service Medicare patients. Already many doctors will not accept Medicare patients because of the low payments, endless paperwork, and risk of prosecution for “over-billing.” Looking at one recent Medicare patient medical bill, Medicare and supplemental insurance paid 29 percent of the billed amount, requiring the doctor to eat 58.5 percent of his charges and the patient to pay 12.5 percent. The doctor was paid $93.16 on a $320.89 bill. And Obama wants to reduce payments to providers?

What is Obama thinking? A country that can’t afford Medicare can’t afford National Health. Medicare provides only for the elderly, and it provides very little. A person pays the Medicare tax as long as he earns and on the totality of earnings. For the rich the Medicare tax can exceed the cost of a gold-plated private insurance policy.

Basic Medicare leaves a person unprotected. To provide better coverage, it is necessary to enroll in Medicare Part B for which the premium is $308.30 per month or $3,699.60 per year. On top of this, a person needs a privately supplied supplemental policy to complete Medicare coverage. AARP’s policy, which, after deductibles are met, covers half of drug costs, cost the “Medicare protected” elderly $ 273.50 per month or $3,282 per year. The drug prescription plan passed by Congress costs the individual yet more.

The two supplements to Medicare cost the Medicare patient $6,981.60 per year. In addition, if the Medicare patient has much retirement income besides Social Security, he pays income tax on 85% of the $3,699.60 Medicare Part B premium as it is part of taxable Social Security, which for someone in the 25% bracket is another $925 dollars.

In the late 1970s, Democratic Senator Russell Long, Chairman of the Senate Finance Committee, told me that as Social Security was collected as a tax on wages and salaries, the US government had promised never to tax the benefits. So much for any commitment that the US government makes to the American people.

A top Social Security income, net of Medicare Part B premium, is $23,220 per year. Deduct the AARP policy, and the elderly who have paid in maximum Social Security taxes, get $20,000 per year. Of course, few Social Security retirees receive the maximum payment. AARP’s Public Policy Institute reports that in 2006 the average annual Social Security benefit for a retired worker was $12,372. Such a worker would have little left after paying the Medicare Part B premium and an additional premium for a supplement.

Offshoring and “free trade” have destroyed employer-provided health coverage for millions of employees. Private health care coverage can cost as much as one-third and even one-half of a person’s earned income, and some people are not insurable. National Health seems to be in the cards--only there is no money for it. All the money is being spent in pointless wars and on bailouts of financial fraud. The Obama budget puts bankster bailouts and pointless wars ahead of the health of the American people.

National Health advocates emphasize that a single-payer system is less expensive because it eliminates layers of profits. It is also less expensive for a less promising reason. Unless there is a parallel private health care system, National Health systems limit health spending to what is provided in the government budget. Over time, health care has to compete with everything else in the budget. Every part of the budget has its partisans and special interests. It is fantasy to assume that National Health will always be well funded. Just look at the state of the National Health Service in the UK.

Obama’s plan to tax the rich is another con job. Obama’s budget defines the rich as a person with a $250,000 before tax income. This is a rotten joke. The rich are the banksters, such as Hank Paulson with his $160 million annual bonus, and heads of hedge funds with their $1,000 million annual incomes. To confuse the struggling middle class with the real rich is criminal. A person with a $250,000 income before tax does not come close to being rich. Obama’s “tax the rich” scheme will devastate the upper middle class and leave the super rich undamaged.

The only change we have from Obama and the Democrats is for the worse. Bush’s FY 2008 budget deficit was $450 billion. The FY 2009 deficit is projected at $1.2 trillion. The budget deficit in Obama’s first budget is $1.75 trillion, a fourfold increase in two years.

Obama’s projected budget deficits are an understatement. For example, Obama’s budget assumes a less steep economic decline than the economy is experiencing, and it projects that war costs will drop to $50 billion annually beginning in 2011--this despite Obama sending more troops to Afghanistan and recent congressional testimony of Lt. General David Barno, former head of US forces in Afghanistan, who said the war in Afghanistan could last until 2025.

The “war on terror” will never end, because the moronic US government has defined everyone who resists US hegemony as a “terrorist.” The great danger to American civil liberty is that the US government regards as terrorists American citizens who realize that the neoconservative dream of American hegemony is a fantasy. As the Obama regime has not repealed the Bush regime rule-- “you are with us or against us”--Americans who oppose hegemonic war are lumped into the “against us” category.

There seems little chance that civil liberties will be restored. Obama and his “liberal” Justice (sic) Department have sided with Bush/Cheney on every important civil liberties issue. Yet, the ACLU sees “hope” in Obama’s rhetoric!

On February 21 Yahoo News reported: “President Barack Obama's administration has sided with predecessor George W. Bush on the rights of detainees at Bagram air base in Afghanistan, saying they cannot challenge their detention in US courts. In a two-sentence court filing Friday, the US Justice Department said "the government adheres to its previously articulated position" of denying habeas corpus rights to Bagram detainees, backing a similar decision by the Bush administration.”

“Earlier this month,” Yahoo News reports, “the Obama administration backed another Bush anti-terror policy when it urged a federal court to dismiss a lawsuit accusing Boeing Company of helping fly suspects to secret CIA detention centers overseas. The Justice Department said the case should be thrown out to protect state secrets.”

Do you remember the illegal spying? The US telecom industry succumbed to Bush regime pressure and broke the law together with President Bush. The illegal act made the US telecom industry subject to lawsuits, but the Bush regime placed its co-conspirators above the law.

Now Obama has sided with the Bush regime. On February 26, therawstory.com reported: “The Obama Justice Department continues to stand behind a Bush era law meant to prevent lawsuits against telecommunications companies accused of illegally sharing private customer information with intelligence agencies. In a brief filed late Wednesday obtained by Raw Story, the Department of Justice provided its views to Chief U.S. District Judge Vaughn Walker, after the San Francisco federal judge questioned the constitutionality of the wide-sweeping law and whether it gives the U.S. Attorney General too much power in deciding whether a company is immune from lawsuits after it has shared information with federal agents.”

On February 26 antiwar.com reported that the “new CIA director (Leon Panetta) declares nothing has changed, nothing will change.” Panetta declared that the US policy of conducting war on Pakistan’s sovereign territory “would continue.” The attacks, Panetta claimed, “have been successful.” For the CIA, claims of success equal legality. Did the Bush regime ever express greater arrogance and hubris?

With Rahm Israel Emanuel, an Israeli dual citizen, in charge of the White House and Obama’s schedule, Obama will have an even less independent foreign policy in the Middle East than Bush. Somehow someone among the Obamacons managed to put forward an appointment that could challenge the Israel Lobby’s stranglehold. Charles Freeman, former US ambassador to Saudi Arabia, former top Pentagon official, and president of the Middle East Policy Council, was chosen by Admiral Denis Blair, Director of National Intelligence, to head the National Intelligence Council.

The neocons went berserk. Steve Rosen, formerly of AIPAC, currently indicted as an Israeli spy, Gabriel Schoenfeld, who wants the New York Times indicted for allegedly violating the Espionage Act for reporting the Bush regime’s illegal spying, Daniel Pipes, who sees Muslim terrorists under every bed, Michael Rubin of the warmonger American Enterprise Institute, and Frank Gaffney, possibly the goofiest person in America, damned Freeman’s appointment as “deeply troubling,” because Freeman has an open mind on the Middle East situation.

In other words, if you are not on Israel’s side, you are disqualified.

There is no more certain indication of continuing war in the Middle East on Israel’s behalf than for Freeman’s appointment to be blocked.

Pay close attention to this one. If Obama succumbs to the Israel Lobby and nixes Blair’s appointment of Freeman, the US will have to finance interminable wars on top of trillion dollar bailouts and massive unemployment.

The US might not even make it to 2012 before it is a banana republic.

Dr. Roberts was assistant secretary of the Treasury in the Reagan administration. He was associate editor of the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service, Senior Research Fellow at the Hoover Institution, Stanford University, and William E, Simon Chair in Political Economy, Center for Strategic and International Studies, Georgetown University.

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