Monday, September 26, 2011

The country has two current problems. First we have too much debt and the budget deficit keeps expanding with no end in sight. Second the economy is weak and unemployment is too high. Monetary policy has done all it possibly can to avoid a deeper recession than we currently have. Any further monetary policy steps are just rearranging the deck chairs. The next step is for fiscal policy (Congress) to address these problems.

The solution to either of these issues will by definition make the other problem worse. The question facing policy makers is it possible to stimulate the economy without increasing the deficit. (NO) or can we cut the deficit without hurting economic growth (again NO). Congress needs to pick its’ poison and try to craft a consistent approach. We are already seeing the effect of Federal, state and local government spending cutbacks as the economy heads toward a double dip. Neither of these problems exists in a vacuum. Each side of the aisle needs to acknowledge that both of these issues are a concern and there must be a compromise to get started on a solution that is good for the country.

Personally I find it difficult to address the deficit first because suppression of the economy could lead to a deflation scenario which would be very difficult to correct. I believe we need to stimulate the economy and hope that increased economic activity will allow us to pay down our debt. Increases in income, business spending and tax receipts are necessary to give us the breathing room we need to put our fiscal house in order.

The only other issue for Congress is to“stop threatening to shut down the government” over every little thing. Grow up, shut up and get to work.

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