All these fiscal cliffs, debt ceilings, and threats of sequester have us poised for disaster. For the Republicans, the party that has traditionally been the least worried about the debt and deficit, budget cuts appear to simply be a means of achieving their end of destroying programs they don’t like. The Democrats, on the other hand, don’t seem to have any ulterior motive–they’re just ignorant. They also desperately want to continue to use the Clinton surpluses (a result, not a cause, of the long 1990s expansion) as a means of marketing themselves as the responsible party.
In the end, monetary policy does not introduce any net financial assets into the economy, loan demand is too soft, and the deficit is declining. Recession is on the horizon. So if we want to end up like Greece, Italy and Spain then by all means choke the economy.
“There is widely held view in Washington policy circles that the economy was golden in the Clinton years. We had strong growth, low unemployment, rising real wages, a soaring stock market and huge budget surpluses. According to this myth, George W. Bush ruined this Eden with his tax cuts for the rich and wars that he didn’t pay for. While there are plenty of bad things that can be said about George W. Bush, his tax cuts for the rich and his wars (whether paid for or not), this story of paradise lost badly flunks the reality test . . .”
anirrationalviewoftheirrational – great piece by Baker that highlights the failed understanding of most people how the monetary system actually works. The Fed is powerless right now to add money to the economy. The only two ways are if people borrow enough (become indebted), or the Federal government deficit spends adding financial assets to the economy. The latter is the only viable option right now.
This John Harvey article sums up the current situation in DC quite well:
http://www.forbes.com/sites/johntharvey/2013/01/30/the-coming-recession/
All these fiscal cliffs, debt ceilings, and threats of sequester have us poised for disaster. For the Republicans, the party that has traditionally been the least worried about the debt and deficit, budget cuts appear to simply be a means of achieving their end of destroying programs they don’t like. The Democrats, on the other hand, don’t seem to have any ulterior motive–they’re just ignorant. They also desperately want to continue to use the Clinton surpluses (a result, not a cause, of the long 1990s expansion) as a means of marketing themselves as the responsible party.
In the end, monetary policy does not introduce any net financial assets into the economy, loan demand is too soft, and the deficit is declining. Recession is on the horizon. So if we want to end up like Greece, Italy and Spain then by all means choke the economy.
Dean Baker 1/29/13
http://www.cepr.net/index.php/blogs/cepr-blog/deficit-delusions-putting-to-rest-the-clinton-legacy
“There is widely held view in Washington policy circles that the economy was golden in the Clinton years. We had strong growth, low unemployment, rising real wages, a soaring stock market and huge budget surpluses. According to this myth, George W. Bush ruined this Eden with his tax cuts for the rich and wars that he didn’t pay for. While there are plenty of bad things that can be said about George W. Bush, his tax cuts for the rich and his wars (whether paid for or not), this story of paradise lost badly flunks the reality test . . .”
anirrationalviewoftheirrational – great piece by Baker that highlights the failed understanding of most people how the monetary system actually works. The Fed is powerless right now to add money to the economy. The only two ways are if people borrow enough (become indebted), or the Federal government deficit spends adding financial assets to the economy. The latter is the only viable option right now.
mmcosker, an excellent piece at New Economic Perspectives, by Matthew Berg, The Spinning Top Economy, that explains that graphically…
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