Wednesday, May 15, 2013

As the Economy Recovers and Fiscal Stimulus Can Be Reduced, The Federal Deficit Falls Significantly

Just Like Us Keynesians Said It Would

If President Obama was a Republican, the GOP would be proclaiming him the best President ever.  After taking over an economy in free fall, the President has presided over a recovery (much more modest than it had to be), a rising stock market, falling unemployment, increasing job creation and finally, a substantial decline in the budget deficit.

In February, the nonpartisan Congressional Budget Office predicted that this year’s deficit would fall to $845 billion, down from nearly $1.1 trillion in 2012. Goldman Sachsrecently predicted that the deficit would fall even further, to $775 billion, and return to sustainable levels within two years.

As a result, the national debt is rising far more slowly than in the frantic days after the 2008 economic crisis: The Treasury Department actually expects to repay a tiny sliver of the $16.8 trillion national debt by the end of June.

Mr. Obama inherited a trillion dollar plus deficit, and just like those other great tax and spend and borrow Democrats, Lyndon Johnson and Bill Clinton, he is getting the deficit under control.  As a result Republicans are glum.

Republican Budget Guru (?) Paul Ryan - Why So Unhappy?

Because despite his policy the economy is still growing and unemployment is still falling.

Since 2011, when Republicans gained control of the House and made cutting spending their top priority, Washington has faced a series of economy-rattling showdowns that produced eleventh-hour deals to cut spending, raise taxes and extend the federal debt limit. The most recent came during the year-end “fiscal cliff” fight, when Republicans reluctantly approved more than $600 billion in new taxes on the wealthy over the next decade.

Demoralized by that defeat — it was the first time in more than two decades that congressional Republicans had approved a significant tax hike — House GOP leaders developed a strategy that promised greater success: They would goad Senate Democrats into adopting a budget plan and force them into negotiations, even as automatic spending cutsstarted to take effect March 1, slashing agency budgets.

This means the only hope of the Republicans is to impose European style austerity on the United States, to create a return to recession which they could blame on the President.  It is true that the current cuts in spending and higher taxes are an unnecessary burden on the economy, but fortunately the recover may be strong enough to withstand current policy.

So look for Republicans to panic and want to devastate the economy even more, after all a broken U. S. economy with higher unemployment, all blamed on Democrats is about the only way their economic arguments can win them elections.

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