Debt Ceiling Deal is a Drag

Discussion in 'Economy' started by Wiseacre, Aug 2, 2011.

  1. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    on the ecomony that is, according to the Wall Street Journal. A mild drag according to unnamed economists. The agreement could boost confidence for consumers, investors, and businesses by eliminating the uncertainty over the gov'ts ability to borrow for awhile, and it does preclude a default and takes a stab at spending cuts.

    The 1st round of these cuts would begin in FY 2012, starting this October. Discretionary spending will decline about 25 billion in that FY, plus another 47 billion in FY2013. Since gov't spending is one of the determinants in calculating GDP, by that measure GDP could drop betrween 0.1% and 0.3% depending on who you talk to. While that doesn't sound like much, this economy looks like it's already on the verge of another recession, and so the deeper cuts that many wanted might've been counter productive.

    Look, if the economy was buzzing along at 3 or 4%, I'd be out front waving the flag for larger spending cuts. But it ain't, and so I believe moderation should be the key. Stabilize the patient before you cut him open, so to speak. Here's a question for you: that 25 and 47 billion that isn't going to be spent this year and next, that money isn't going back into the economy, it's just less money that we were going to borrow. Which is good, in the long run we won't owe quite as much. But in the short run, some gov't jobs will be lost and spending from those people will be reduced and we'll have to pay more UE benefits. All I'm saying is, I don't think we want to go nuts for a few years cutting a lot of gov't spending. While not perfect, this deal wasn't bad at all.
     

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