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.
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).
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%?
There’s still a few out there, I guess, who still spout Keynesianism as ‘revealed truth’ —
and the call *us* ‘bitter clingers’.....
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.
OK Warren so both cutting and spending will drag down the economy.
WHAT IS THE SOLUTION?
Government spending is the “broken window” economic model. If we stop lawmakers throwing rocks, there will be no more window repair.
“the” = “they”...
Coffee hasn’t made it all the way to my fingers yet...
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.
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.
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.
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?
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."
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.
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...
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
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