Consider this fact pattern: you are currently a business owner thinking about either hiring someone or taking out a loan. As part of this process, you think about political events over the next few months and see the following:
1.) Washington allows the debt ceiling debate to expire. As a result, US Treasuries sell-off, yields spike and the entire yield curve is thrown off. This of course increases the cost of your capital and makes the possibility of closing a loan nearly impossible. If you are looking at hiring a new person, you see this scenario as one that halts any forward economic momentum, meaning an already weak aggregate demand situation becomes weaker, making hiring someone a low priority.
2.) Washington solves the debate issue. In doing so they negotiate huge spending cuts. This lowers GDP growth (remember, government spending is a variable in the GDP equation). As such, this deal also hurts your company in the medium term, thereby lowering the possibility of taking out a loan or hiring somebody.
Here's the point of the above scenario: no matter what Washington does right now, all possible, publicly floated program options will lower overall growth. That means Washington is clearly a problem, creating a large amount of macro-level uncertainty that is in turn freezing action.
Cooper Union’s shameless trustees
1 hour ago
4 comments:
What if the government reduces spending, eliminates as much waste and fraud in Medicare and Medicaid as possible, lets the Bush era tax cuts expire and we go back to something like the Reagan years tax rates, and agrees to limit spending increases to allow natural growth and tax revenue to pay off our debt over, say, thirty years. The government could do that.
Anonymous, would those be the Reagan years tax rates before or after he raised taxes six times? How about just going back to the Clinton Era tax rates that by 2001 led to debt-relieving surpluses for as far as they eye could see at the time? Personally, I wouldn't mind a temporary (maybe ten-year) return to some of the very highest marginal tax rates of the Eisenhower Era.
The solution may include some waste, fraud, and abuse work on entitlement spending, but real meat and bone can be cut from military spending by ending the Bush Wars and also by at least letting the Bush Tax Cuts expire.
We can wish for Zombie Unicorns too.
The GOP is NEVER going to do anything to help the USA because it will mean Obama benefits. They will burn the country to the ground first.
Dare we call it Treason yet?
The political game going on within the GOP itself isn't helping matters either. You've got Eric Cantor who is seen as speaking for the tea partiers, acting as the negotiator in the budget. But then he bails on it, forcing Boehner to jump in. This, of course, is part of Cantor trying to maneuver to be speaker of the house.
So now Boehner steps in and the tea partiers will not accept any settlement he comes up with. To keep them happy he pretty much has to force the government into default. So he's given a choice: sacrifice his career or sacrifice the country. This should be an obvious choice but it may not be for him.
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