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THE DANGER IS FROM THE SPENDING CUTS, NOT THE DOWNGRADE
Pragmatic Capitalism ^ | 7-29-2011 | Warren Mosler

Posted on 07/29/2011 4:49:50 AM PDT by blam

THE DANGER IS FROM THE SPENDING CUTS, NOT THE DOWNGRADE

29 July 2011
By Warren Mosler

The headlines are all about the risks of default or a too small deficit reduction package causing a downgrade of US debt. And while markets react to those issues, they all miss the point.

The consequences of a downgrade to US govt debt are minor at best. Note that when Japan was downgraded below Botswana, with a debt/GDP ratio nearly triple that of the US, interest rates remained the lowest in the world.

The real risk comes from the spending cuts.

No debt ceiling extension is the worst case scenario. Government spending will fall by some $150 billion/month as expenses can’t exceed revenues. Fed Chairman Bernanke mentioned that might reduce GDP by a full 6%. And that’s just the first order effect, as a falling economy means falling tax revenues, which means further reductions in Treasury spending in a pro cyclical nightmare.

And if they do extend the debt ceiling it will be with prescribed spending cuts. This too adds drag to the economy. The more the cuts are meaningful and immediate, the more the drag on the economy increases. Because the markets don’t yet understand this, the feedback they are giving is misleading policymakers, and encouraging them to make deeper, more meaningful cuts.


TOPICS: News/Current Events
KEYWORDS: badnewsblam; budget; debt; economy
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1 posted on 07/29/2011 4:49:56 AM PDT by blam
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To: blam

We better stop spending what we don’t have. The public is beginning to wake up. Retail spending is dropping like a rock (like I’ve never seen).


2 posted on 07/29/2011 4:51:41 AM PDT by MeneMeneTekelUpharsin (Freedom is the freedom to discipline yourself so others don't have to do it for you.)
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To: blam
Another Big Wrinkle Today: An Ugly GDP Report

The official estimate is still at 1.9%, but there's definitely a louder and louder "whisper" number that's way lower than that, perhaps even lower than 1%?

3 posted on 07/29/2011 4:52:21 AM PDT by blam
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To: blam

There’s still a few out there, I guess, who still spout Keynesianism as ‘revealed truth’ —

and the call *us* ‘bitter clingers’.....


4 posted on 07/29/2011 4:54:22 AM PDT by Uncle Ike (Rope is cheap, and there are lots of trees...)
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To: blam

Every bureaucrat walking out the door with his box of personal stuff is a victory for prosperity. Yeah, it’s going to be tough sledding at first, but picture a world without the insane levels of regulation and enforcement. Maybe we could even manufacture something again in this country.


5 posted on 07/29/2011 4:54:27 AM PDT by oncebitten (Re: Obama: "I could carve a better man out of a banana." T. Roosevelt)
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To: blam

OK Warren so both cutting and spending will drag down the economy.

WHAT IS THE SOLUTION?


6 posted on 07/29/2011 4:54:44 AM PDT by 30Moves
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To: blam

Government spending is the “broken window” economic model. If we stop lawmakers throwing rocks, there will be no more window repair.


7 posted on 07/29/2011 4:55:34 AM PDT by Freedom_Fighter_2001
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To: Uncle Ike

“the” = “they”...

Coffee hasn’t made it all the way to my fingers yet...


8 posted on 07/29/2011 4:55:47 AM PDT by Uncle Ike (Rope is cheap, and there are lots of trees...)
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To: blam

The Government sends out 80 million checks per month to citizens. At this point, we are borrowing 42 cents of every dollar we spend. If we cut that overnight, its akin to cutting about 11% of GDP (not to mention the ripple effect). Would have a huge impact on the economy. But....the longer we wait the worse the final shock will be.


9 posted on 07/29/2011 4:56:31 AM PDT by rbg81
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To: blam

They way they calculate GDP is a bunch of Keynesian BS.

They should take any money that government spends and divide it by 10, because that’s about the amount that would really go back into the economy that the government spends.


10 posted on 07/29/2011 4:56:48 AM PDT by Brett66 (Where government advances, and it advances relentlessly , freedom is imperiled -Janice Rogers Brown)
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To: blam
Fed Chairman Bernanke mentioned that might reduce GDP by a full 6%. And that’s just the first order effect, as a falling economy means falling tax revenues, which means further reductions in Treasury spending in a pro cyclical nightmare.

This is just complete HORSESHIT. These 'experts' are so engrossed in the mechanics of an impossibly corrupt and bastardized government-economic model, they fail to see their little island is becoming engrossed by a sea of debt.

It is ludicrous to think that severely decreased government spending is a wrench in the gears of the economy, ESPECIALLY for the longer term. This might be a short term effect until a saner spending practice (you know, one where you actually have real money to spend?) is finally forced into play. Government does not produce revenue! They steal it from people and corporations that earn it! Whatever they steal is siphoned off (their 'taste' and the 'taste' for their lazy ass non-working constituents) and what's left over fuels this economy. Government does EVERYTHING it can to cap the economy.

These buttwipes talk just like Junkies rationalizing about how bad it would be to go cold turkey...they cajole and say 'just enough' to keep me straight....."I can taper down..." and all that crap.

11 posted on 07/29/2011 5:01:41 AM PDT by Gaffer
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To: blam

So we’ve been partying too long already, and we know there will be a big hangover. We can quit now and deal with it...or better yet let’s drink a whole bunch more because it will be too painful to deal with our current recklessness?


12 posted on 07/29/2011 5:03:50 AM PDT by paint_your_wagon
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To: 30Moves
"OK Warren so both cutting and spending will drag down the economy."

That's exactly what many of us (around here) have been saying for a couple years now.

"There's no peaceful way back from here."

13 posted on 07/29/2011 5:05:16 AM PDT by blam
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To: blam

The Dems/socialists/commies have achieved their dream-a government so big that the country is a slave to it.I see only one effective solution.


14 posted on 07/29/2011 5:07:00 AM PDT by Farmer Dean (stop worrying about what they want to do to you,start thinking about what you want to do to them)
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To: blam
What a frigging lie, those are projected increases, they are not fracking real. Shows what a tool, of the democrap and rino parties, the federal reserve is.
15 posted on 07/29/2011 5:08:26 AM PDT by org.whodat (What does the Republican party stand for////??? absolutely nothing.)
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To: blam
Just...

Photobucket

16 posted on 07/29/2011 5:09:53 AM PDT by Aevery_Freeman (White Hetero Able Male (WHAM) a.k.a. NOT Holder's people)
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To: blam
Speaking for myself, and nobody else, I prefer to take the medicine immediately and not force the medicine on the next generations. It will be a bitter pill to swallow (the pill became more bitter each time the debt ceiling was raised), but why should I run away in fear. I would be less of a person should I run away again, for I have run away from the bitter pill for thirty plus years and allowed successive Congresses to force the debt on this nation, to rise, seventy five times. If run away, I doom future generations to possible serfdom due to my fear of the bitter pill. I want Americans to be Free. Freedom does not come from being in debt.
17 posted on 07/29/2011 5:11:26 AM PDT by no-to-illegals (Please God, Protect and Bless Our Men and Women in Uniform with Victory. Amen.)
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To: blam

where in the hell do they find these psuedo economists at??? Is there a clearance sale on idiocy???? The hippies are dying off, and their dream of a soviet style utopia is vanishing right before their eyes.... always remember, the last battle in a war is the most deperate, vicious and costly. The hippies are fighting their last battle...


18 posted on 07/29/2011 5:11:45 AM PDT by joe fonebone (Project Gunwalker, this will make watergate look like the warm up band......)
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To: blam
The Government Doesn’t Need Any More Money… 22 Jul 2011 by Bob
19 posted on 07/29/2011 5:13:50 AM PDT by combat_boots (The Lion of Judah cometh. Hallelujah. Gloria Patri, Filio et Spiritui Sancto.)
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To: blam

From the Authour.

The current US GDP is propped up at a high level because we pull future spend into the current period (Debt).
We must maintain the fake higher GDP at all costs.
We must continue to pull future spend into the current period to maintain the fake GDP.

I’m calling BS. Take away the stimulants. The natural and normal GDP has to be the foundation for decisions


20 posted on 07/29/2011 5:14:34 AM PDT by Steven Tyler
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