By Dave Lindorff

The real cost of the Bush Administration’s trillion-dollar bailout
of Wall Street is becoming painfully apparent as the incoming Obama
administration attempts desperately to make a case for its own
$800-billion economic stimulus package, while warning about “trillion
dollar deficits as far as the eye can see.”

On its own merits, all other considerations aside, with the
economy slipping into a sinkhole, President-elect Barack Obama’s call
for $800 million in stimulus spending should be a slam dunk for
Congress. The problem is, Congress already caved in a hurry and
approved nearly that same amount--$700 billion—in a matter of days when
Bush’s Treasury Secretary Hank Paulson and his Federal Reserve Board
Chair Ben Bernanke said they needed the money to prevent a collapse of
the financial industry, as the nation’s biggest banks, investment banks
and insurance companies teetered on the brink of insolvency last fall.

In fact, there was no need for panic. Paulson reportedly warned
assembled Congressional leaders in late September that a financial
Armageddon loomed, which would lead to mass runs on the banks, rioting
in the streets, and ultimately martial law. Although the number of
Americans who have more than the insured amount of $100,000 in a bank
is not enough to make for one small staged bank run, the Congress
blinked, and gave him essenntially a blank check to spend $350 billion
right away. Paulson and Bernanke took that authorization and ran with
it, spending most of it to invest in those institutions, and adding
even more money using all kinds of tricks that ultimately could put the
taxpayer on the hook for as much as $8 trillion dollars. They cranked
up the printing presses too, and, like a North Korean counterfeiting
ring, ran off an extra $2 trillion in greenbacks, just for good measure.

No wonder that now that Obama comes in asking for another $800
billion over the next two years—just a tenth of the sum the Bush/Cheney
regime has pissed away over a couple of months—Congress is balking.

In fact, Obama actually caved before he even began, making half his
request for stimulus money actually a in the form of a proposed
$500/per/taxpayer tax rebate. We already saw how successful that idea
was when we got the Bush tax rebate last year. The money was used by
most hard-strapped citizens to pay down debt. When they actually went
out and bought stuff with their rebate—which was the intent of the
program—since almost nothing is actually made in the US, the money
ended up just being shipped abroad to Mexico, China, Sri Lanka and
India. Some stimulus!

The same thing will happen to the Obama tax rebate. It will go to
paying down debt, or it will be spent on imports. But unless he talks
straight to the American people, politically, Obama has to include a
rebate in any bailout, or he won’t get any Republican support in
Congress for his stimulus package.

Meanwhile, the evidence is that the Bush/Cheney boondoggle, while
it enriched the owners and investors in the big banks that got the
investments (many used the federal largesse to pay executive bonuses,
or to buy other banks at firesale prices), did nothing to loosen up
credit. Banks that found themselves with more cash on hand, instead of
lending it out to businesses or homeowners, reportedly simply deposited
it at the Fed to collect the interest. Company financial executives and
industry economists say nothing has really changed in credit markets in
response to the blowing of hundreds of billions of dollars on the
financial industry.

So what we have here is either a monumental and unprecedented
rip-off of the taxpayer, which has now jeopardized the ability of the
incoming administration and Congress to do what needs to be done:
namely to relieve the financial distress of ordinary people and to try
and kick-start the economy, or an example of true financial stupidity
on the part of the current administration, compounded by the gutless
acquiescence of a Congress that already showed, in the run-up to the
Iraq War, that it is no longer up to the task of monitoring and
challenging the executive.

Either way, we’re in a heap of trouble going forward. The Obama
administration, even if it wants to, will not have the resources to
finance a recovery. Take away the $400 billion that Obama wants to
waste on tax rebates, and you have left a paltry $400 billion, to be
spread over two years, which we’re expected to believe is going to
revive a depressed US economy that last year was running at $15
trillion.

The other thing to consider is the impact of all this incredible
borrowing on he soundness of the US dollar. We know that China is
thinking more and more seriously about unloading its trillions of
dollars of reserves. If it does, Japan and other major holders of US
currency will likely do the same thing, as will the oil producing
states in OPEC and outside of OPEC. (If you thought buying oil in
dollars was painful last year, wait until you see how expensive it is
when you are paying in Euros or Renminbi or Yen!). Some economists are
warning that because of all the US borrowing of recent months, the
dollar could take a 40-percent hit in value against other key
currencies in the coming year or two. That would slam consumers hard,
since so much of what we need for our daily lives—food, clothes, cars,
furniture, etc.—is produced overseas and would become instantly 40
percent more expensive. It would also be a death blow to any economic
recovery, because the Federal Reserve would be compelled to raise US
interest rates in hopes of slowing down the decline of the dollar.
Higher interest rates would cripple any Obama administration economic
stimulus efforts.

What we need at this point is a new realism. The US economy is in a
shambles because we Americans have been living in a fool’s paradise,
with the government boosting domestic incomes and consumer spending by
inflating housing prices to absurd levels, and pumping up the Wall
Street casino with easy credit and a blind eye to scandal. Now that it
has all come crashing down, there will not be the usual rebound. The
housing market will not recover. Neither will the stock market.
Americans will not, in a year or two or three, feel as wealthy as they
did before it all fell apart. The wealth people thought they had last
year was an illusion, and now it’s gone, like a morning mist.

The remaining unspent Treasury Assets Relief Program (TARP) money
Congress authorized should be withdrawn and applied to a real stimulus
program, and the tax rebate Obama is proposing should be dropped. If
the new president wants to help lower income individuals, that’s one
thing, but just giving everyone a tax credit is nonsense.

Economist James Galbraith, a professor of economics in Texas, has
proposed some good uses for federal stimulus dollars—a Home Owners Loan
Corp. that would refinance bad mortgages at the true value of the homes
in question, and grants to struggling state and local governments that
are otherwise going to be laying off workers and killing critical
programs like health and education. He is also calling for a supplement
to Social Security for people nearing retirement whose private 401(k)
funds and IRAs have been killed.

These are all good ideas. A better one would be to slash military
spending by 50 percent and to close the 800 or more US military bases
that are scattered across the globe.

Do all this and the country has a shot at avoiding a new depression and a slow slide into third world status.
______________
DAVE LINDORFF is a Philadelphia-based journalist and columnist. His
latest book is “The Case for Impeachment” (St. Martin’s Press, 2006).
His work is available at www.thiscantbehappening.net