[Mustang19]

http://blogs.wsj.com/economics/2011/05/21/number-of-the-week-95-days-to-wipe-out-2011-growth/

Treasury Secretary Timothy Geithner has warned that if the debt limit isn’t increased by August 2, the government will no longer be able to spend more than it collects in revenue. That means it will have to cut spending by about 35%, probably choosing among such items as payments to contractors, soldiers’ salaries, social security and Medicare. On average, the cuts would amount to about $3.8 billion a day, according to our own estimates based on projections from the Congressional Budget Office. At that rate, over a period of only 95 days, the cuts would add up to 2.9% of gross domestic product, adjusted for inflation. That’s just enough to negate all the economic growth forecasters expect in 2011.

The title of the article is 95 Days to Wipe Out 2011 Growth. And this is coming from, of all big government-loving sources, the Wall Street Journal.

Sorry to instigate another liberal circle jerk, but this is something that actually matters and affects people. The predicted 3% drop in GDP is just the beginning; the multiplier effect on fragile private investment isn't even mentioned. The tragedy is that yields on a 1 year treasury are at a historical low. It costs the government a whopping .18 of one cent on the dollar to borrow money for a year. For all their talk of deficit doomsday the fiscal cons stand to really **** **** up.

[Sushi]

In other words, the U.S. can’t afford to live within its means now, and it can’t afford not to do so later.

In other words, we're screwed.

[General Battuta]

My unflappable optimism is slightly flapped

[achtung]

What should this do to currency value?

[Herra Tohtori]

[StarSlayer]

Republic of Haven Plan? 

[Nuclear1]

We can't tax the rich!
We can't cut military spending!
We can't close loopholes in the tax code!

WAIT HOLY **** WE'RE AT THE DEBT CEILING?! THIS MUST BE MEDICARE'S FAULT

[Turambar]

Successful information war against the lower classes is successful.

[Mustang19]

Good suggestion Hera. The Dems get their spending, the GOP gets to wave flags- it's a win-win! Where should we send the troopses first? I nominate Sweden.

What should this do to currency value?

Hm... I could probably guess. Although in the longer term lower deficit spending will balance the current account and slow the decline of the dollar a bit. If you're asking because you're investing in dollars though you should have left this currency for AUD or Real a long time ago.

[Mika]

I nominate Sweden.

Mika agrees. (And likely Herra too!)

[Grizzly]

In other words, the U.S. can’t afford to live within its means now, and it can’t afford not to do so later.

In other words, we're screwed.

We look on with suprise on why it took you so long to figure that out. It was evident ever since Bill Clinton left office that the US debt was soaring. It was even a bigger suprise that his spiritual successor didn't do anything about it but continued the trend of his spiritual adversary.

[Mustang19]

We look on with suprise on why it took you so long to figure that out. It was evident ever since Bill Clinton left office that the US debt was soaring. It was even a bigger suprise that his spiritual successor didn't do anything about it but continued the trend of his spiritual adversary.

Obama continued to run up debt because the economy was in recession from the second he took office. There's plenty of evidence to indicate what happens when drastic fiscal cuts are made during a downturn. Had he not issued the bailouts and stimulus the economy would be in much worse shape now.

For all the mention of the unsustainability of the US debt, treasury yields remain quite low and it will be some time before the US runs out of credit. Now definetly isn't the time to stop spending.

[General Battuta]

Agreed, cutting spending during a recession is a bad idea. I may be flashing a Keynesian leaning here, but you need to keep money moving during a recession - otherwise the money supply tends to contract as consumers become more cautious, which chokes the whole system.

[Nuclear1]

Which is why we've gotta get the Bush tax cuts expire for the upper tax brackets.  The people who make the most money are hoarding it, rather than paying their fair share.  They even backed out on their promises to create jobs, so, honestly, they've had their chance and blew it.  Instead of breaking all of the people who actually do the work (cook your meals, haul your trash, connect your calls, drive your ambulances, guard you while you sleep), make the people who benefit the most from that pay their fair share.

[Mustang19]

I think it's more the other way around and I'll tell you why GB. Additionally the idea that high aggregate demand is essential to maintaining growth is somewhat discredited. Keynes is something like who Freud was to the science of psychology- a lot of what he said was dubious, but he got people asking the right questions.

If anything the most important factor in sustaining growth and employment (in current mainstream models) is investment decisions by firms. When firms cannot access capital because lenders have none to give after sinking it into mortage backed securities or other now-illiquid assets, and sales don't rise to compensate, then they aren't able to invest and will roll back plans for expansion and hiring. Thus the government takes the place of the consumer or financial system to give firms the profit or credit they need in order to invest or replace depreciating fixed capital.

And I'd second Nuclear1's comment, although only in these particular conditions.

[Unknown Target]

The problem isn't that the money's not moving, it's that it's not moving through the right channels. There's tons of money flowing but much of it isn't going to the people who need it.

[Sushi]

Agreed, cutting spending during a recession is a bad idea. I may be flashing a Keynesian leaning here, but you need to keep money moving during a recession - otherwise the money supply tends to contract as consumers become more cautious, which chokes the whole system.

I think cutting spending is good, but certainly not all of it all at once. I'm fine with measured, yet significant reductions in spending...

but so far haven't seen anything of the kind. Most of the proposals I see bandied about call for essentially chump change spending while the elephants in the room continue to get bigger. (EDIT: Likewise, doing something like not raising the debt ceiling so we go crashing into it is also stupid.)

Raise taxes, slightly. Cut spending, slightly. We'll still be going downhill for a while, but at least we'll be slowing down instead of speeding up.

[WeatherOp]

Which is why we've gotta get the Bush tax cuts expire for the upper tax brackets.  The people who make the most money are hoarding it, rather than paying their fair share.  They even backed out on their promises to create jobs, so, honestly, they've had their chance and blew it.  Instead of breaking all of the people who actually do the work (cook your meals, haul your trash, connect your calls, drive your ambulances, guard you while you sleep), make the people who benefit the most from that pay their fair share.

I'm on the fence in regards to taxing the rich, however right now I am totally against it. The reason is this, why tax them more right now? It will not help anything. Until the morons in Washington actually try to cut spending, taxing the rich is more or less spitting in the wind. I hear the battle cry, "Tax the rich!", but when you have the same idiots with the same issues about spending everyone's money, you end up at the same place. You have just more or less given them more money that will burn a hole in their pocket.

If you wouldn't give a drug addict a huge wad of cash until you are sure he has kicked the habit, you sure wouldn't give our government another dime until they do the same.

[NGTM-1R]

I'm on the fence in regards to taxing the rich, however right now I am totally against it. The reason is this, why tax them more right now? It will not help anything. Until the morons in Washington actually try to cut spending, taxing the rich is more or less spitting in the wind. I hear the battle cry, "Tax the rich!", but when you have the same idiots with the same issues about spending everyone's money, you end up at the same place. You have just more or less given them more money that will burn a hole in their pocket.

If you wouldn't give a drug addict a huge wad of cash until you are sure he has kicked the habit, you sure wouldn't give our government another dime until they do the same.

Let me break it down for you: since 1940, the rich have been the only group progressively less taxed in the United States. Their collection of loopholes has grown progressively larger; as of this year 18% of the households in the United States with 1 million or more income a year do not pay income tax. At all. (Ask PBS for the source, I just listen to All Things Considered.)

However if they did nothing, the government would grind to a halt, so they have to finance it somehow so nobody lynches them in the resulting rebellion. Their share of the government's ability to spend is now almost entirely based on buying chunks of the debt. In fact, rich people in this very country own a good 40% of the US government's debt load. Either way you look at it, the rich have decided to create a great deal of the deficit by either buying the debt or not paying taxes.

40% less debt if they instead paid taxes rather than financing the government this way. We would have a deficit, still, but not very much of one, so we could pretty much cut an Army division and fix it.

[WeatherOp]

40% less debt if they instead paid taxes rather than financing the government this way. We would have a deficit, still, but not very much of one, so we could pretty much cut an Army division and fix it.

I guess that is my biggest concern. We've seen how our government spends with a massive deficit. I can only think what would happen if all of a sudden the debt was gone or nearly gone. The government would have a hay day. I agree, the loopholes should be fixed, however I want to see our government actually try to create a balanced budget first. Because if they get a good wad of cash and blow it again, we would be totally finished.

Not that I'm convinced by any stretch of the imagination we aren't already.