Friday, November 12, 2010

Dean Baker Analyzes Catfood Commission

Dean Baker of The Center for Economic and Policy Research offers the most straightforward analysis of the actions, ideological drivers, ventures outside its mandate and general refusal to acknowledge economic reality of the Deficit Commission. Baker spares no one and offers appropriate level explanations of the Commission's misrepresentation of the nature of current deficits. Here's a small sample, though you really should read the whole thing (it's not all that long):


The large government deficits are the only factor sustaining demand following the loss of this bubble wealth. If today's deficit were smaller, we would not be helping our children; we would just be putting their parents out of work. Simpson and Bowles somehow think they have covered this concern by delaying their cuts until fiscal year 2012, 11 months from now. Virtually all projections show the unemployment rate will still be over 9.0 percent at the point when the Simpson-Bowles cuts begin to slow the economy further. This leaves the economy like a plane with one engine already out and Simpson Bowles prepared to knock out the other engine as well.

The failure to understand current deficits contributes to a misunderstanding of the debt burden. For example, Simpson and Bowles raised fears of an exploding debt reaching 90 percent of GDP by the end of the decade. There is no reason that the Fed can't just buy this debt (as it is largely doing) and hold it indefinitely If need be, the Fed can use other tools at its disposal to ensure that this expansion of the monetary base does not lead to inflation.

This creates no interest burden for the country, since the Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country's net interest burden.

This means that the country really has no near-term or even mid-term deficit problem, just paranoia being spread by many of the same people who led the economy into its current disastrous situation.

Concluding boldface mine. Think it over. For Bowles (again my fingers tried to type "Bowels") and Simpson, the Commission is not a device for addressing a fiscal problem; it is yet another excuse to offer tax cuts for the very wealthy ($700 bn is the figure I see most often) on the backs of the middle class and the poor. I guess Obama would say that's a chunk of change we can believe in.


  1. The people who made the mess act like they had nothing to do with it.

    Start cutting some worthless weapons systems, and then I might believe that they actually care.

    In the real budget the security spending is way out of line with reality and that's where the cuts have to be made. That's also were they are in dire need of an audit, because something was seriously wrong with their accounting under Rumsfeld. Items that were specifically funded, like armor for people and vehicles never appeared, although the money was spent.

  2. Actually, Chef Michael's isn't bad with a pat of butter or some melted gov' Velveeta.



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