Wednesday, 03 February 2010 04:34

Starving the Beast

by Manuel Rodriguez

Republicans have prevailed in their efforts to rein-in future spending, as deficit-saddled US governments will find it nearly impossible to increase spending for at least the next 10 years.

The New York Times reports, here, that the Obama administration has released startling budget predictions that anticipate massive budget deficits, through at least 2020, which will render the United States nearly impotent in its ability to create new domestic initiatives to alleviate our current crisis or develop new social programs. These deficits will strangle future governments' ability to initiate new programs or provide aid to stagnant states or industrial sectors.

Starving the Beast, which refers to Republican's fiscal policy of using budget deficits via tax cuts to force future reductions in the size of government, may ultimately prevail. Bush-era tax cuts, coupled with massive spending created by 2 wars, will result in budget deficits far into the future. These deficits have been largely funded by the Chinese, who have recently demonstrated their anxiety over the situation by admonishing the US government repeatedly.

While Starving the Beast was widely discounted and ridiculed as impractical or unsustainable throughout the Reagan and Bush era, it appears that the massive budget deficits created by the wars, coupled with the Bush era tax cuts, will have the same practical effect throughout the next decade.

The resulting deficits will largely succeed in choking future administrations, including Obama, from increasing or initiating domestic spending programs, especially while America fights a 2 front war. What are the practical implications of this? Future administrations, and Congress, will have to either make drastic cuts in expenditures or raise taxes, or a combination of both.

Republicans have largely ignored the deficits, and refuse to consider tax increases, while Democrats refuse to consider massive cuts to entitlement programs. This path is unsustainable, and will result in further weakening of the US dollar as governments abroad lose faith in the US' ability to sustain itself. Meanwhile, the stock market continues its disconnect from mainstream America, and has continued its slow, if steady rise to new heights. The stock market reflects the increasing disconnect between the investment class, which prefers short-term solutions to long-term problems, and most of America, which is increasingly skeptical of any solution to these problems.

America's present path is clearly on a collision course with its future. Starving the Beast will ultimately result in both massive cuts to entitlement programs, and the pain that this will engender throughout the lower and middle classes. Cuts to social services and entitlement programs will be coupled with increased taxes at both the state and federal levels, as state and municipal governments strain to balance their budgets. While state governments have largely avoided these cuts by adopting accounting gimmickry to forestall these cuts, real pain will ultimately be felt by real people. Unless another consumption bubble, fueled by runaway asset prices is created, the slow demise of America's economy has been ensured by Starving the Beast.



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