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Tuesday, August 2, 2011

Impact of Debt Ceiling Compromise

Well, it is The Washington Examiner, but they do talk to the economic impact of the Debt Ceiling Compromise, in Kenyensian terms.  The estimate is $25 Billion in 2012.  The final paragraph of the article reads:
Hard-core Keynsian Suzy Khimm claims that a 1 percent of GDP cut to government spending reduced GDP by .5 percent in two years.  So at .2 percent of GDP, by Keynsians own numbers, the debt limit deal will lower GDP by .1 percent.  That is a rounding error at best.
$25 Billion was a big number to Senator Everett Dirksen, but today not so much.

Let us not forget that those are jobs lost for the time, but the long term value is in stabilizing the economy, avoiding a credit rating downgrade in November and creating even more jobs in the future.

Regards  —  Cliff

1 comment:

Anonymous said...

I hope you are correct Cliff, but I am not optimistic. First and foremost, the debt deal only kicks the can down the road for a short time and does very little in material terms about the long term debt load, other than to increase it.

As for jobs, there are not going to be any significant job gains unless and until corporate America (you know....those dastardly capitalists who actually CREATE jobs) gains confidence in the Federal government enough to get off the wads of cash they are sitting on. This confidence includes a big modification to the tax code. I would suggest a tax holiday on repatriated money...something that gets the capital back inside the country where it will do the most good. Until the tax code is changed...don't look for any big money moves...except for out of the country.

Here's the immediate outlook post debt deal from Barclays Investments: "The debt deal does not put the U.S. on a sustainable fiscal path," economists at Barclays Capital wrote in a note to clients, adding "weakness in U.S. growth has the potential to offset most of the savings claimed by the debt reduction package."

http://www.foxbusiness.com/markets/2011/08/02/futures-fall-amid-economic-lingering-debt-concerns/#ixzz1TtzXyU4J

Right now....it is almost ALL little more than political posturing by both parties and tactical positioning to stick it to the other guys if possible. Sen. Diane Fienstein today took to the Senate floor to give a histrionic lecture about how the Republicans have done nothing but create artificial crises amid behind the doors partisan actions that hold a gun to the head of the poor cooperative, team playing Democrats. Funny what a difference a few years makes. Didn't I hear the Reps bleating the same tired accusations during the Obamacare "debate." I even recall Obama himself cutting off the dialogue by proclaiming to McCain, "John, I won, you lost." He could have easily added, "So shut up and color."

This economic train is still headed off the cliff....