The projections include the "normal" deficit of about $300 billion, and
the $700 billion giveaway to the major financial houses. There's also
about $150 billion allocated to stimulate main street lending, which,
ominously, doesn't seem to be doing much of anything. It presumably also
includes the $850 billion or so Obama wants to spend on vast public
works programs as a way of "priming the pump," as FDR would put it. Keep
people employed in some way, keep liquidity going so the wheels of the
economy don't lock up. There's no choice in the matter.
However, the estimates on the deficit don't include other outlays the
government is going to have to make in order to keep the states
functioning. Present estimates are that the states collectively are
looking at a cumulative deficit of one trillion dollars. California is
currently at $40 billion in the red, but the recession is just getting
started. In Sacramento, they are making all sorts of draconian proposals
to cut the deficit: closing hundreds of schools, shortening the school
year by two weeks, having all state employees take two unpaid days off a
month, and suspending all state construction projects for up to six
months. An 18 cent tax on gasoline was proposed, which sent Republicans
right out of their minds. They didn't mind forcing state employees,
teachers, and kids to sacrifice, but pay eighteen cents more on gasoline
that cost two dollars less than it did six months ago? Sacrilege!
Conspicuously missing was one proposal to increase revenue that wouldn't
stall out what's left of the economy or force anyone to suffer: taxing
the rich. This was the sixth emergency budget proposal Arnie has made
since the economy began to collapse in mid September, and he didn't even
bother to turn up in person for this one. Arnie may not be the greatest
governor in the world, but he's not a fool; he knows that the proposals
are deeply unpopular, and in the face of rapidly-worsening conditions,
utterly futile, and that only a federal bailout can save the state.
And California is a mighty economic engine, bigger than any corporation
in the world, bigger than all but six of the world's nations. If
conditions are that grim here, imagine how bad it is in places like
Mississippi or Louisiana.
Other industries are lining up for bailouts, too. The steel industry
wants a big bailout, even though it stands to massively benefit from
public works programs involving highway and bridge reconstruction. Dan
DiMicco, CEO of Nucor, is apparently unaware of why the Great Depression
got so bad, and wants Congress to tack on a "Buy American" proviso to
the bailout that would compel the government to buy only American
materials. Just what we need: another dose of Smoot-Hawley. That would
be the tariff act of 1930 that utterly killed remaining American world
trade and vastly deepened the depression. Remember, kids: what's good
for Nucor is good for...well, not even Nucor. As usual, American big
business is incapable of recognizing its own best interests, let alone
those of anyone else.
Other outfits lining up for giveaways are shopping malls (who are facing
hundreds of thousands of retail store closures), credit card companies
(apparently they can't make a profit charging 23% per annum on their
cards, a rate that would make Tony Soprano blush), newspapers (already
failing because they got bought out by corporate interests and no longer
reliably report news Americans need to know) and, in the biggest
redundancy of all, the ethanol industry. Corny but true.
As the Depression widens, a lot of the chains will be sticking out their
hands, looking for public subsidies. I'm sure you'll be happy to spend
tax dollars so a "big box" store can continue to undermine the US
economy by buying cheap shit from China. That's the type of productivity
that made America the great nation it is today.
Republicans are still clinging to the notion that if they weaken working
Americans by reducing their wages and making them slaves to debt, this
will somehow result in a stronger America. That was based on the notion
that even after you eliminated most of the consumers in America, there
would still be plenty of buyers, overseas if nowhere else. They simply
refused to believe that a spike in basic commodities such as food and
oil (food because of actual shortages fueled in part by acreage being
turned over for the aforementioned heavily subsidized ethanol industry,
oil from a speculative binge) would throw the whole world into a
Depression. Didn't the free market people promise that sort of thing
could never happen again? As a result, Republicans believe that the
answer is to cut wages and benefits, and reduce health and safety
standards. The resulting plunge in purchasing power can be remedied by
easy credit and forcing consumers to acquire basic services such as
health care through the private sector. Until they can't, of course.
So the Republicans, still fighting their class war, are of no use to
America at all.
So it falls to Obama and the Democrats to try to salvage what they can.
Don't be surprised if the deficit ends up being four or five trillion,
and the government is basically underwriting what in effect would be a
missing third of an erstwhile $15 trillion economy. That will blow the
national debt up to over 120% of annual economic activity (publicly and
privately funded) and put the flow of red ink at levels not seen since
world war two, when the government spent as much as three times what it
The problem is that once things begin to improve a bit, massive
inflation will kick in. That means that even with jobs at hand, working
class and poor Americans will continue to suffer. It's impossible to
predict just how bad the inflation will be, because it depends on a lot
of factors such as the strength of the economic recovery, and whether
the rest of the world will want to continue to hold America's debt, and
for that matter, what the rest of the world does to get out of the
economic morass. It depends on the costs of the twin occupations, and it
depends in large measure on whether corporations just take the money and
run, or actually use it to try to restore the American economy. Despite
what the libertarians and endless TV ads claim, corporate interests are
not American interests, and they will cheerfully let America collapse if
it means bigger profits.
But the inflation is also an informal type of debt forgiveness. One huge
disadvantage we face in this crisis that we didn't face in 1929 is the
vast amount of debt the country was carrying going into the crash. Back
then, state, local, and federal governments all had balanced books,
consumer debt was nearly non-existent, and corporate debt was all
secured. And it was still a hell of a climb out of the Depression.
Now, the debt is incredible. Not just the national debt, but vast
amounts of corporate debt stemming from leveraged buyouts and
bookkeeping games, and debts in the consumer sector that amount to
nearly half a years' wages on average. And nobody knows how much debt
(money owed on what are essentially bets) is out in the derivatives
market. Estimates run as high as $600 trillion, which is more money than
there actually is in the whole world.
But debt is expressed in current dollars, and an annual rate of 20%
inflation has the effect of reducing debt by about 18% a year. Five
years of such inflation, while wiping out savings that most Americans
don't even have, will reduce the actual value of the debts on the books
by more than half. Inflation also spurs at least an illusion of economic
activity, which is another reason for government to like it.
This all may sound very duplicitous and contrary to the public interest,
but the fact is that the government may have little or no choice in the
matter. Without such extreme remedies and measures, it's entirely
possible, for the next twelve months at least, that the economy might
It's going to be a tough year, 2009, and most of us are going to suffer.
But it beats the alternative, which is chaos, widespread starvation, and
a complete breakdown of society.
But let's keep Republicans, CEOs, and stockbrokers near at hand.
They are, after all, edible.
You know. Just in case.