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THE BUDGET AND THE BAILOUT BLUES

By Dennis Patrick

Immediately following his inauguration, President-elect Obama must submit his FY 2010 budget to congress. Actions speak louder than words and his budget will speak volumes about the direction in which he intends to lead America.

I previously offered a perspective of the magnitude of large numbers comprising the federal budget. We now have a $3 trillion dollar budget which continues to grow. An illustration of $1 trillion goes like this. If you counted dollar bills at the rate of $1 per second without time-out for eating, sleeping or going to the bathroom it would take roughly 73,500 years to complete the task. Counting the federal budget in this manner would take three times as long. This illustration may or may not be adequate, so I’ll attempt a second illustration.

The following is provided courtesy of Jim Bianco of Bianco Research. These good folks crunched the numbers for all the recent bailouts and concluded the following. If Citibank is included, the total cost of all recent promised bailouts exceeds $4.6165 trillion. Because folks have a hard time conceptualizing large numbers, Bianco Research offered context. Adjusted for inflation, the bailouts now exceed all of the following expenditures COMBINED: Marshall Plan ($115.3 billion), Louisiana Purchase ($217 billion), Race to the Moon ($237 billion), S&L Crisis ($256 billion), Korean War ($454 billion), The New Deal (estimated $500 billion), Invasion of Iraq ($597 billion), Vietnam War ($698 billion) and the total NASA budget ($851.2 billion). The combined total comes to over $3.92 trillion.

The only other event in American history that comes close to the cost of the bailouts is World War II. Adjusted for inflation, World War II cost us a bargain $3.6 trillion.

At $7 trillion, the cumulative national debt is now twice the amount of the $3 trillion annual budget. Furthermore, the growing annual budget deficit is $1.7 trillion, half as much as the current budget. Every time congress creates a larger deficit with bailouts, that amount is added to the national debt. That’s insane! The chickens, as some say, will come home to roost.

All of these numbers are offered by way of context. By law, President-elect Obama must present the FY 2010 budget by February 2009 and congress must pass that budget by October 1, which it never does. Obama is toying with “health care for everyone” and another “stimulus package” and slighting more vital budgetary concerns such as national defense. Where as most spending has no basis in the US Constitution, defense spending does (Article I, Section 8). Even so, at this point we haven’t had a serious debate about staving off the forthcoming bankruptcy of Social Security and Medicare. Question: How is Obama going to fund legitimate budget items, much less add new programs and reduce the debt? It won’t be from taxes. If the “rich” gave everything they had it wouldn’t fund the budget much less retire the debt. On top of that, he promised to “cut taxes for the middle class.”

National defense continues as a vital, real world issue confronting America. If we can’t defend ourselves, all else is moot. Cutting defense spending is not an option. As often happens, defense is singled out as the budget bad boy and targeted for cuts. Alternatively, at 40% of the budget, discretionary spending has grown at twice the rate of defense and homeland security. The remaining 60% of the budget is fenced off by mandated spending and cannot be tampered with. Therefore, congress should look to discretionary spending, as popular as it is, as a place for budget cuts.

Don’t expect a “peace dividend” after Iraq. The last five times we demobilized following a war, we had mobilized first. Not so with Iraq. Iraq was a “come as you are war” preceded by a decade-long military procurement holiday. Since Desert Storm the Army has been cut from 18 to 10 divisions. The Navy has reduced from 600 to 280 ships. The Air Force aircraft replacement is one-tenth what it was before Desert Storm.

The military is being asked to do more with less. The real irony is that the tempo at which our military is required to operate has increased while the budget has decreased. During the Cold War the military took part in 50 operations (not exercises) a year compared almost 100 operations per year today.

Considering America’s worldwide obligations and the projected geopolitical situation for the next ten years, we’re setting ourselves up for disaster if we don’t sustain a defense budget at of at least 4% of Gross Domestic Product (GDP). That according to a consensus of national security analysts and public officials.

As much as Obama would like to portray himself as a giant budget cutter, it isn’t going to happen. Despite what he says about going through the budget line-by-line looking for waste, he has no line-item veto authority. In fact, there have never been any meaningful budget cuts. Budgets simply continue to grow.

The really frustrating part is that we blithely continue to re-elect the same politicians that got us into this mess in the first place who insist on growing the budget and going further into debt. When the house of cards falls, it won’t be pretty.

Dennis M. Patrick can be contacted at P. O. Box 337, Stanley, ND 58784 or bnt@midstatetel.com.