As I have noted (perhaps ad nauseum), the debate about the deficit/debt and the proposed extreme solutions are coming, and the impact on our economic recovery and the market could drag us backward, much like what has happened in England after they recently implemented harsh budget cuts to address their own debt issues. I have also suggested that the real power brokers (adults) will step in and squash the ridiculous talk and potentially damaging austerity measures. It appears the grownups are now speaking out as we approach key budget deadlines …
A confidential new report prepared by Goldman Sachs for its clients says spending cuts passed by the House of Representatives last week would be a drag on the economy, cutting economic growth by about two percent of GDP. The report, which is signed by Goldman economist Alec Phillips, goes on to predict that the House-passed bill is unlikely to become law because it won’t pass the Senate and, in any case, the president threatened to veto it. More likely, the report says, is a deal to cut spending by $25 billion this year, followed by a cut of $50 billion next year. Even those more modest spending cuts, Goldman Sachs predicts, will cut economic growth rates by one percent of GDP.
Now that the formerly silent voices of reason are rising above the din of political rhetoric, it is clear the road ahead for those who espouse dismantling government, as we have known it, all for the sake of so-called “fiscal sanity,” will not be as smooth as it has been thus far. It is clear the voices of grownups (power brokers) will soon calm the roiling waters and deliver reason back to the discussion …
Ideological heresy may not quite be breaking out all over Washington, but in the growing debate over the burgeoning debt, there are helpful hints of apostasy. And hope of a bipartisan consensus for responsible deficit reduction may lie atop those tiny waves of dissent. The latest whiff of hopeful heterodoxy comes from three Republican senators – Saxby Chambliss of Georgia, Mike Crapo of Idaho, and Tom Coburn of Oklahoma. In quiet backroom negotiations and in a remarkable public exchange of letters with Grover Norquist of Americans for Tax Reform, the three lawmakers suggest that they might—might—support revenue-raising tax reform as part of a broader deficit reduction deal.
I still have concerns about the frantic screaming of the children, especially about shutting down the government and not raising the debt ceiling, but I am encouraged the adults with real power will exert that power in the best interests of the economic recovery, and in the best interests of our long-term future. Long term, it is in our best interest to keep the economic recovery alive and energetic, as the reality is the government needs revenue and the best way to get that revenue is through an expanding economy. As well, the government needs to cut spending, but not now and not at the expense of the economic recovery, even if the children who do not know better are screaming as if their hair is on fire. Hey, you adults, it is time to act like grownups. Bring the noise level down and start talking like reasonable people with big problems to solve.
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