The White House has released its new estimate of the budget deficit for FY 2009--a record $482 billion, amount to about 3.3 % of GDP. See Pear and Herzenhorn, A Deficit Forecast of $482 Billion, a Record, New York Times, July 29, 2008. This is the largest deficit in all time in dollar amounts, but not as big as Reagan's big 1983 deficit in terms of percentage of GDP, though it doesn't yet reflect the full cost of the interminable Iraq occupation and the regime's so-called "war on terror" (which seems more like a war on constitutional liberties), the probably additional losses of tax revenues, and the additional "stimulous package" (including again a bunch of items that won't help the neediest among us). And this year's deficit of about $370 billion will be double the FY 2007 deficit. Id. All to wage a privatized war that shouldn't be fought and to provide tax cuts to the wealthy that have garnered the best portion of whatever small gains our economy has made since 2001.
Reagan, of course, ushered in Milt Friedman's wacky free marketarian ideology in full swing in America. We'd already done considerable damage to thriving democracies in South America, particularly Chile and Argentina, by creating a political crisis that led to a military takeover of the government and then imposing Chicago School "disaster capitalism" that deregulated, privatized and eliminated social programs. As a result, countries where there was broad growth benefiting all of the population became wonderful growth generators for the very small upper crust terrible stagnant economies for the vast majority of their citizens, many of whom were "disappeared" because they supported developmental economic policies that strengthened government regulation, retained government control of natural resources and related industries, and paid attention to the primary principle that the government should help the public good, not corporate profits. Reagan provided a huge tax cut his first year, primarily to the big multinational corporations that make up the new corporatist state-corporate partnership, and then lots of tax increases from his second year on, but replacing much of the earlier taxes on the wealthy and corporate owners with payroll taxes not paid by the wealthy at all.
After 40 years of mostly Republican corporatist tax, military and general domestic policies, we have a "globalized" economy built in many ways according to the Chicago School and so-called "washington consensus" demands: subsidies to big corporations to exploit our natural resources for their own greatest gain, lowered tax burdens for big corporations and their owners, failure to fulfill the promises made in respect of pensions and health benefits, coupled with shifting the risks to workers, shifting the burden of maintaining whatever national interests there are to workers while cutting back on the various social programs that achieved incredibly strong consensus support under the "New Deal" Keynesian policies of FDR as we realized that public schools and public utilities were best run by government in the public interest. Globalization carries with it many myths that resemble the "trickle down" theory of economics that fostered deregulation and privatization in the first place. The problem is that the creation of wealth accrues to the wealthy, and the vast majority of ordinary people are left to stagnate or at best receive a few dregs of the economic growth engine. Military escapades create excuses for new privatization, that hands lucrative no-bid contracts to wealthy cronies (think Halliburton and its $20 billion and counting from Iraq or Blackwater and its "security" contracts in Iraq and New Orleands). The vast majority are left out of the good life, and are stuck with paying for it all--through gouging prices, indecent services, flat wages (with busted union laws that give all the power to employers) and burgeoning debt burdens.
This current administration has been the worst of the four decades, because it is so open about its cavalier attitude towards the vast majority of Americans, its willingness to pervert the Constitution to benefit its cronies, its military expansionism and its blatant corporatism that elevates the large multinationals to non-dues-paying quasi-sovereigns who can impose their will on workers who have little or no defenses. Tax policy is just one of the ways this regime has warped the rules to favor the haves over the have-nots. Spending decisions (billions for military; peanuts for peaceful programs that fight poverty and aid the hopelessly poverty stricken) and borrowing decisions complete the picture.
The result: the U.S. faces its highest deficit in absolute terms ever, in FY 2009, which will be made up for by borrowing even more. The financial sitution (that has seen the federal government talk "individual responsibility" to homeowers caught with too-high mortgages with too-high interest rates after getting pushed and shoved by the banks to use more and more debt to fund a higher-than-reasonable lifestyle, while the feds bail out the big banks (and, to more extent than necessary, their high-flying shareholders)) continues to worry the banks so much that even business loans are getting harder to get, and of course ordinary Americans are paying huge rates of interest so that the banks (and their owners) can make up as much of their losses as possible. See Peter Goodman, Worried Banks Sharply Reduce Business Loans, July 28, 2008. The mortgage losses could easily top $1 trillion. And of course the banks are charging very high interest for what money they do loan, even though their loans from the Fed are at very low interest. One reason is that the securitizations by which banks offloaded their risks to smaller investors (and the economy generally) are not so easy these days: banks hold onto more loans, and therefore need to scrutinize their borrowers more fully.
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