This commentary marks the first of a monthly column by Edwin Dean, an economist who has taught at Columbia University, City University of New York and The George Washington University, in addition to more than a decade of work at the U.S. Bureau of Labor Statistics. Dr. Dean has also served as a consultant for the World Bank, the Organization for Economic Cooperation and Development and the Ford Motor Co. His commentary will examine current economic conditions and trends from a national perspective that nevertheless affect life here in Maine. Dr. Dean is a summer resident of Vinalhaven.

The Bush administration’s huge and growing budget deficits will impose on our kids an economic legacy of slow growing – or even falling – incomes. The deficits also may cause a financial crisis that will threaten our kids’ standard of living.

How did we get to this point? The answer in part is that the Republicans have abandoned their traditional opposition to large budget def-icits and have adopted the slogan “deficits don’t matter.”

In 2001, President Bush’s first year in office, he enjoyed a large budget surplus inherited from Clinton. The Bush administration quickly turned these surpluses into deficits – the estimated 2005 deficit is $331 billion, amounting to about three percent of our national output, a high and dangerous level.

The Maine share of this huge deficit, computed using Maine’s portion of the U.S. population, is $1.5 billion, more than $1,100 for each person in the state. And note that this is not Maine’s share of the total Federal debt-it is just our share of this year’s increase in the debt.

The deficits have grown, in part, because of spending on the war on terror and the war in Iraq and also because a recession gained traction just as Bush assumed office. They have also grown because of increased pork-barrel spending. But almost half of the Bush deficits are due to tax cuts, which have benefited wealthy taxpayers much more than the rest of us.

Hurricane Katrina’s costs have not yet been factored into these deficit estimates. These are crudely estimated at $200 to $300 billion. The federal government’s share of Katrina’s costs will likely be over $130 billion, to be spent over several years. If the Administration had not been spending so wildly, or cutting taxes so sharply, we would be more able to shoulder this new burden.

What are the long-term effects of these growing deficits? Most economists agree that over time large and sustained deficits crowd out private investment, reduce productivity and economic growth, and increase our trade deficits with our import and export partners. One study estimated that by 2015 budget deficits of this magnitude will have a negative impact on national income of about $1,500 to $3,000 a year for each household.

As we run large budget deficits, our Treasury must borrow. It does this by issuing new Treasury bonds, which are bought in large part by foreign central banks. So we have become more and more indebted to these foreign banks, and especially to the central banks of China and Japan, which hold many billions of dollars in U.S. Treasury bonds.

Foreigners have plenty of dollars to buy these bonds because our trade deficit is surging. U.S. imports are rising much more rapidly than our exports, and our trade deficit is now 80 percent higher than it was in 2001. The higher trade deficits provide foreigners with additional U.S. dollars-by increasing our imports, we are sending more and more dollars to foreign businesses and banks. These are the dollars that foreign central banks are using to buy U.S. Treasury bonds.

Why is our trade deficit rising? For several reasons – but one is our rising budget deficits.

As foreigners have increased their stocks of dollars, the dollar has fallen in terms of foreign currencies-the law of supply and demand has affected the dollar. In 2001 it took only 91 cents to buy 1 euro, while now it takes around $1.22 – a drop of one-third in the value of the dollar.

As the dollar falls, it takes more hours of work by our workers to buy imported goods. This decline in purchasing power will translate into slower growth – or perhaps even a decline – in our standard of living. Our children will not thank us for this.

Meanwhile, partly because of the huge budget deficits, our national savings are extremely low. When the budget deficit goes up, national saving goes down, if other things remain unchanged. In 2005, the net saving rate for the U.S. is running at only 2 percent of our national income, much below the 5 to 7 percent level of the late 1990s.

With lower national savings, we have fewer funds for investing in productive capital, such as factories, commercial buildings and machinery. And with lower growth in productive capital, growth in our output of course will lag. As a result, growth in our children’s standard of living also will lag.

Our kids will not thank us for this, either.

Hold on. It gets worse. Remember that foreign central banks are holding more and more Treasury bonds, valued in U.S. dollars. Meanwhile, the dollar is becoming less valuable, so these bonds are losing value. Suppose these banks decide to sell some of their declining U.S. bonds – surely they will at least consider selling bonds that are losing value. This will hurt the value of these bonds and at the same time cause a further decline in the value of the dollar. If all this happens suddenly, it will provoke an international financial crisis. Paul Volcker, the former chairman of the Federal Reserve, warned that within five years we face a 75 percent chance of a serious financial crisis.

Suppose Volcker is exaggerating these dangers, and the chance of a serious financial crisis actually is lower. A huge problem will remain: the Bush policies will still lead, for all of the reasons noted above, to slow growth or to a decline in our kids’ standard of living.

Either way, this would be a sad legacy to bestow on our children, and they will not thank us.

Edwin Dean of Vinalhaven writes monthly about economic issues.