Columns » Ernest Dumas

In the red


What improvident leader offers the best metaphor for the fantasy world in which the current president of the United States imagines himself? Hoover? Coolidge? Neville Chamberlain? Nero? It doesn’t matter. With President Bush it is not a single blind spot like Coolidge’s faith that happy bankers and traders insured the nation’s well being. Reality never intrudes on Bush anywhere. Both Middle East wars he started were essential to the nation's safety and, thanks to error-free judgments that his administration made every step of the way, the wars are going better and better. The economy is the best in 20 years and, thanks to more and more tax cuts, it is about to soar even higher. Not a shred of evidence supports any of it. The daily carnage and the vast acreage of rubble across Iraqi cities give the lie to all the rosy talk about that war. The United States having abandoned its promises in Afghanistan in order to fight in Iraq, the Afghans are back under the heel of warlords. And the nation’s fiscal stature? Even the old conservative ideologues have abandoned Bush, although they cut him some slack. He has to continue the tack another month to get elected, they say, but after that he will deal with reality, end the spending binge and tax cuts and maybe even raise taxes to avert the onrushing calamity. They overestimate this man. The trouble is that the unreality at the White House infects the whole Capitol. Congress passed, on a largely bipartisan vote, still another package of tax cuts, the fifth in less than four years, and Bush proudly signed it Monday while he was campaigning in Iowa. They were not tax cuts in the usual sense because they simply continued reductions that Congress had originally set to expire at the end of this year so that the 10-year effect on the deficit would be understated. But they will add $145.9 billion to the projected deficit over 10 years by continuing the small middle-class tax cuts of 2001 and 23 tax cuts for businesses. In case the bond markets and the foreign banks that underwrite our debt are still unshaken, Congress is rushing this week to send Bush still another round of tax cuts for corporations totaling $150 billion to $170 billion. Congress has to roll back some of the previous corporate tax benefits because the World Trade Organization authorized Europe to retaliate against the United States for its illegal business subsidies by imposing punitive tariffs. But Bush and Congress wanted to offset that effective tax increase by lowering other corporate taxes, and while they were at it they loaded the bill with tax benefits. The record deficit of the fiscal year that ended Thursday amounts to 5.7 percent of the total economy, the second highest since World War II, if you take the roughly $150 billion of surplus Social Security funds out of the equation. Bush is spending the payroll taxes that aren’t needed for current Social Security benefits on the war and to pay for the tax cuts. The decline in the nation’s fiscal well-being — from a $236.6 billion surplus in 2000 to a deficit of $425 billion or so in 2004 — is the most precipitous by far in 50 years, according to the Center for American Progress. This week alone, the Treasury will borrow another $24 billion to cover Bush’s folly. China presumably will buy a big chunk of the treasury bills, as it always does. Thank goodness for the communists, Bush must intone every night. They’re keeping us afloat — and George Bush in office. But what if they and other Asian countries stop financing our debt? Unable to borrow the cash to keep everything running, the government would have to raise taxes big time, stop the war or cut benefits on a big scale, or all of the above. That is only one of the perils of Bush’s economic course. (Alan Greenspan last month repeated another: sharply reduce Social Security and health-care benefits so that more of the taxes that support those benefits can keep the Pentagon and the wars going.) How real is the danger that foreign central banks will quit buying our treasury bills? China may have too much invested in U.S. debt to risk anything so devastating, which would cause the dollar to plunge even further. But there was an ominous article in the China Daily by the director of international economics at the China Foreign Affairs University — ominous because the communist government allowed it to be printed prominently. Troubled by the mushrooming deficits in the American federal budget and trading accounts as well as the slide of the dollar, he suggests that it may be time for China to stop subsidizing the dollar. Japan is already cutting back. U.S. interest rates are low partly because China and other Asian nations are willing to buy the securities. Just how long will George Bush be able to thank his lucky stars for the Reds?

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