According to a report
just released by the Congressional Budget Office (CBO), �the [federal budget]
deficit this year will total $1.2 trillion, or 8.3 percent of GDP.� This seems
about right for a banana republic. The bad news is that neither commercial
banana cultivation nor a republican form of government has proved viable
in this country.
Bananas, of course, must be imported into this
country from Latin America and other places where their commercial
cultivation has proved profitable.
As for the republican form of government, the American
people have progressively repudiated it almost from the time they won their
independence from the British Empire, and during the past century, they have
increasingly favored a form of electoral dictatorship cum empire in which,
every four years, the people cast ballots for one of the candidates put forward
by the two wings of the one-party political apparatus. This system,
vigorously promoted by the imperial running dogs known as the mainstream
news media, brings great delight to the masses, who love a good horse race,
even if it has been fixed. They are also kept contentedly semi-comatose by the
bread and circuses their masters provide in the form of the
welfare-nanny-therapeutic state and its Hollywood adjuncts. The few who object
strenuously are Tased or shot dead by the police, who are ever ready to serve
and protect the state that employs them.
The CBO�s projection does not take into account any addition
to the federal budget deficit that may arise from enactment of a �stimulus�
bill after the Obama gang takes charge of administering the empire. If the
magnitudes now being discussed for this so-called stimulus should prove to be
in the right range, the deficit for fiscal year 2009 may turn out to be not
$1.2 trillion, but something in the neighborhood of $2 trillion, perhaps 15
percent of GDP. If so, the deficit will be as large in amount as the
entire federal budget was as recently as 2002. This prospect may be what
cranky commentators such as yours truly have in mind when they speak of �out-of-control
The 2009 deficit arises in part from the CBO�s taking into
account outlays of $238 billion as the net subsidy costs for Fannie Mae and
Freddie Mac, plus $18 billion of cash infusions from the Treasury to Freddie
and Fannie. It is entirely possible that the estimated net present value of
Fannie and Freddie�s future earnings will prove to be too large, and
therefore that the subsidy will be greater than projected and the overall
federal budget also greater by that extra amount.
With little fanfare, the CBO report ventures to mention that
�foreign lenders, who have recently been willing to lend to the U.S. government
on very advantageous terms, may become less willing to do so in the future,
which would tend to raise interest rates in this country.� To be sure. Indeed,
if the Japanese, Chinese, and Arabs, who have been carrying a major part of the
load in covering the federal deficits in recent years, should substantially
reevaluate the risk of dollar depreciation (or even U.S. repudiation of its
debt) and greatly reduce their purchases of U.S. Treasury securities, then
drastically higher interest rates and, in response, hyperinflation (with or
without price and wage controls) might well be the next chapter of
this unpleasant story.
Meanwhile, my advice is: eat bananas while they are still
available from producers who will accept U.S. dollars in exchange for them. If
the U.S. dollar is totally destroyed, as recent and impending government
actions suggest it might be, then we may be reduced to barter, at
least for a while. I wonder if we can trade Hollywood films for bananas. And,
most important, I wonder whether I can get a job in the movie
business, perhaps as an extra for the crowd scenes. I think I have the talent
needed for that role.
Higgs is Senior Fellow in Political Economy for The Independent Institute and
Editor of the Institute�s quarterly journal The Independent Review.
He received his Ph.D. in economics from Johns Hopkins University, and he has
taught at the University of Washington, Lafayette College, Seattle University,
and the University of Economics, Prague. He has been a visiting scholar at
Oxford University and Stanford University, and a fellow for the Hoover
Institution and the National Science Foundation. He is the author of many
books, including Depression,
War, and Cold War.