U.S. Economy

Update Nov. 2012: Information about the so-called fiscal cliff

Update September 2011: NY Times sgguestions to better the economy

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The Actual State of the U.S. Economy Feb. 2011

Baseline Scenario has looked at the U.S. economy and come up with a view at odds with the picture mainstream Dems and Republicans are peddling.

As Baseline Scenario sees the situation, there is no grave danger presently and cries that we are broke are wrong.

The fiscal crisis was caused by big banks blowing themselves up, which resulted in a recession which again deprives government of tax revenues and causes governmental shortfalls. Baseline points out that very little of this deficit is a result of the fiscal stimulus.

I quote this ominous portent for the future:

“The financial system poses a major risk to our fiscal outlook over the next few years. Unless you think that the Dodd-Frank reform bill really ended “too big to fail” and the associated excessive risk-taking culture, you should worry a great deal about the boom-bust-bailout-fiscal damage scenario that the Bank of England now refers to routinely as the “doom loop”.
Update – Nov. 2012 LSW cites a Baseline Scenario post noting that the threat posed by ‘too big to fail’ is not eliminated but still dangerously present.

Of the national level politicians now pushing for spending cuts, almost none showed up to fight to contain the fiscal risks posed by our largest banks. The Brown-Kaufman amendment to Dodd-Frank – which would have placed a limit on the size and debt (relative to equity) was supported by 33 Senators, only a handful of whom were Republican.”

Then the post goes into the need to control healthcare spending. This point is usually overlooked and mired under calls to limit Medicare and Medicaid. The real problem is the growth in medical costs, a point not specifically addressed by the health insurance reform legislation.

The post goes into the need for redoing the tax system which LSW leaves to the reader to suss out.

The concludes:

“But the problem here is bipartisan – as it was with the tax cut last year. None of the leadership on either side is willing to talk openly about how our biggest banks caused great fiscal damage. No one is willing to explain why our healthcare costs continue to rise. And no top politicians currently champion real tax reform.

The Republicans have seized a moment. To them, this is not really about fiscal responsibility; this is about an opportunity to shrink the size of government.

But the Democrats have played perfectly into their hands. The heart of their mistake was the president’s refusal to explain clearly how the financial system produced a recession that has pushed up our national debt.

Both sides of our political elite have contributed to the sense of fiscal crisis. And as we continue down this path – dangerous big banks, out of control health care spending, significant tax cuts, small changes in nonmilitary discretionary spending, and irresponsible rhetoric on both sides – we are well on our way to a real crisis.”
Baseline Scenario on cutting taxes on the rich Dec.10, 2010.