The Tea Party & The Budget Mess: Distractions Aside

05-02-2011 • Market-ticker.org

Now what was said to me was that $800 billion was being proposed in cuts. I brought up the old economic equation GDP = C + I + G + (X - I) and asked if this was accounted for - that is, that $800 billion in cuts would amount to an immediate reduction in GDP of at least 5% of GDP, plus whatever knock-on effects came from the multiplier on foregone sales. The answer was "yes, but private growth will take over within 18 months." Maybe it will, and maybe it won't. It will if we clear the system - we'll return to a reasonable degree of leverage, and the economy will then move forward based on private innovation. But none of this will happen unless that leverage comes out of the system first, because there remains a ridiculously excessive level of debt in the system at a systemic level. More to the point, the maximum negative GDP print during the 08-09 recession was -3.0%! So what's being proposed is an intentional recession of at least double the pain taken in 08-09. Is this being honestly presented? No. Is Congress really going to enact that without presenting it and having the people support it: Not no, but hell no. And note - that's one year, and it's not enough. We must remove both the 2000-2007 distortions and those of 2008 forward. $800 billion is a down payment - not the total. We must, in fact, go further. A lot further. We need to do this. If we don't do it, we will go off the cliff. But the premise that we can simply "sneak this through the back door" is nonsense. It's not going to happen, and all the bleating from alleged "Tea Party" groups who cannot put on the table an actual proposal with actual numbers and departments in it, but claim "$800 billion in cuts" must not be allowed to stand. Why? Because it's a lie, that's why.