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Current Concerns  >  2009  >  No 7/8, 2009  >  The New US Budget: No Money for the People, but Trillions for the Banks and the War [printversion]

The New US Budget: No Money for the People, but Trillions for the Banks and the War

by Professor Dr Michel Chossudovsky, Canada

cc. The following text contains essential parts of a larger article written by the Canadian economist Michel Chossudovsky. The complete text “America’s fiscal collapse” was published on 2 March 2009 on www.globalresearch.ca.


The stated priorities of the Obama economic package are health, education, renewable energy, investment in infrastructure and transportation. “Quality education” is at the forefront. […] At first sight, the budget proposal has all the appearances of an expansionary program, a demand oriented “Second New Deal” geared towards creating employment, rebuilding shattered social programs and reviving the real economy.[…]
To reach these stated objectives, a significant hike in public spending on social programs (health, education, housing, social security) would be required as well as the implementation of a large scale public investment program. Major shifts in the composition of public expenditure would also be required: i.e. a move out of a war economy, requiring a movement out of military related spending in favour of civilian programs.
In actuality, what we are dealing with is the most drastic curtailment in public spending in American history, leading to social havoc and the potential impoverishment of millions of people.
The Obama promise largely serves the interests of Wall Street, the defence contractors and the oil conglomerates. In turn, the Bush-Obama bank “bailouts” are leading America into a spiralling public debt crisis. The economic and social dislocations are potentially devastating.
Obama’s budget submitted to Congress on February 26, 2009 envisages outlays for the 2010 fiscal year (commencing October 1st 2009) of $3.94 trillion, an increase of 32 percent. Total government revenues for the 2010 fiscal year, according to preliminary estimates by the Bureau of Budget, are of the order of $2.381 trillion.
The predicted budget deficit (according to the President’s speech) is of the order of $1.75 trillion, almost 12 percent of the U.S. Gross Domestic Product. […]
Both the Bush and Obama bank bailouts are hand outs to major financial institutions. They do not constitute a positive spending injection into the real economy. Quite the opposite. The bailouts contribute to financing the restructuring of the banking system leading to a massive concentration of wealth and centralization of banking power. […]
The financial elites will use these large amounts of liquid assets (paper wealth), together with the hundreds of billions acquired through speculative trade, to buy out real economy corporations (airlines, the automobile industry, Telecoms, media, etc.), whose quoted value on the stock markets has tumbled.
In essence, a budget deficit (combined with massive cuts in social programs) is required to fund the handouts to the banks as well as finance defence spending and the military surge in the Middle East war.
Obama’s budget envisages:
1. defense spending of $534 billion for 2010, a supplemental 130 billion dollar appropriation for fiscal 2010 for the wars in Afghanistan and Iraq, and a supplemental $75.5 billion emergency war funding for the rest of the 2009 fiscal year. Defence spending and the Middle East war, with various supplemental budgets, is (officially) of the order of 739.5 billion. Some estimates place aggregate defence and military related spending at $1 trillion+.
2. A bank bailout of the order of $750 billion announced by Obama, which is added on to the 700 billion dollar bailout money already allocated by the outgoing Bush administration under the Troubled Assets Relief Program (TARP). The total of both programs is a staggering 1.45 trillion dollars to be financed by the Treasury. It should be understood that the actual amount of cash financial “aid” to the banks is significantly larger than $1.45 trillion. (See table 2 below).
3. Net Interest on the outstanding public debt is estimated by the Bureau of the Budget) at $164 billion in 2010. […]

The Budget Deficit

These three categories of expenditure (Defence, Bank Bailout and Interest on the Public Debt) would virtually swallow up the entire 2010 federal government revenue of 2381.0. billion dollars. […]
Moreover, as a basis of comparison, all the revenue accruing from individual federal income taxes ($1.061 trillion), (FY 2010) namely all the money households across America pay annually in the form of federal taxes, will not suffice to finance the handouts to the banks, which officially are of the order of $1.45 trillion. This amount includes the $700 billion (granted during FY 2009) under the TARP program plus the proposed $750 billion granted by the Obama administration. […]
TARP is but the tip of the iceberg. A panoply of bailout allocations in addition to the $700 billion were decided upon prior to Obama assuming office. In November, the federal government’s bank rescue program was estimated at a staggering 8.5 trillion dollars, an amount equivalent to more than 60% of the US public debt estimated at 14 trillion (2007).
Meanwhile, under the Obama budget proposal, 634 billion dollars are allocated to a reserve fund to finance universal health care. At first sight, it appears to be a large amount. But it is to be spent over a ten year period, - i.e. a modest annual commitment of 63.4 billion.
Public spending will be slashed with a view to curtailing a spiralling budget deficit. Health and education programs will not only remain heavily underfunded, they will be slashed, revamped and privatized. The likely outcome is the outright privatization of public services and the sale of State assets including public infrastructure, urban services, highways, national parks, etc. Fiscal collapse leads to the privatization of the State.
The fiscal crisis is further exacerbated by the compression of tax revenues resulting from decline of the real economy. Unemployed workers do not pay taxes nor do bankrupt firms. The process is cumulative. The solution to the fiscal crisis becomes the cause of further collapse. […]
Is the Treasury in a position to finance this mounting budget deficit officially tagged at 1.75 billion through the emission of Treasury bills and government bonds? The largest budget deficit in US history coupled with the lowest interest rates in US history: With the Fed’s “near zero” percent discount rate, the markets for US dollar denominated government bonds and Treasury bills are in straightjacket. […]
Who wants to invest in US government debt? What is the demand for Treasury bills at exceedingly low interest rates?
The market for US dollar denominated debt instruments is potentially at a standstill, which means that the Treasury lacks the ability to finance its mammoth budget deficit through public debt operations, leading the entire budgetary process into a quandary. […]
The mainstream media suggests that the banks are being nationalized as a result of TARP. In fact, it is exactly the opposite: the State is being taken over by the banks, the State is being privatized. The establishment of a worldwide unipolar financial system is part of the broader project of the Wall Street financial elites to establish the contours of a world government. •

Source: www.globalresearch.ca, 2 March 2009