Bernanke to Congress: We're much closer to destruction than you think

[Danke]

How about Paul Krugman as a source?
http://www.thestar.com/opinion/edito...european-peace


As far as the economy is concerned, the government is the same as any other company. It can hire or fire workers. When budgets get cut, that means that people lose their jobs and unless there are already jobs in the economy for them to go to (and there aren't) then those people get added to the numbers of unemployed. Unemployed aren't getting paid (unless it is unemployment insurance which would be a government expense) and that means no income or social security taxes being paid by them (Government revenues). Their consumption goes down too since they don't have money to spend so sales taxes (usually state and local revenue sources) go down. And since these people aren't buying as much, the places they used to shop at see their business decline and they need less help as well so others lose jobs or hours of work as well.


http://www.reuters.com/article/2011/...79H1TE20111018


Spain would be an excellent example too.


http://www.washingtonpost.com/world/...VJR_story.html

And Zippy's solution to this mess is?

[back2basics]

when will QE be announced?

[Zippyjuan]

And Zippy's solution to this mess is?

There is no simple solution. It was not as bad of a situation but in 1980 Reagan and the Fed also had to make a tough decision. The US had been seeing growing inflation over decades with little sign of letup. The solution was to raise interest rates but that would mean higher unemployment and not all presidents would have wanted the risk of short term harm to the economy in exchange for longer term benefits. He bit the bullet and interest rates were sharply hiked as high as 20% and within the next couple of years (1982) the unemployment rose to over ten percent- the highest this country had seen since the Great Depression- and the country went into a recession. In 1979 unemployment was only six percent. It did not hit ten percent in the current recession.

I guess for the United States I would favor a gradual closing of the budget gap- say $300 billion a year. But you have to shoot for a higher number to try to get to your target and you also have to include both budget cuts and taxes- even though that is unpopular. It cannot be done simply via cuts in spending. But getting anything close to that though Congress- especially in an election year (they are all basially election years now- the House and one third of the Senate get voted on every two years) will be incredibly difficult. I don't expect anything to happen. Congress hates any sort of difficult decisions and put them off as long as possible.

[Danke]

I guess for the United States I would favor a gradual closing of the budget gap- say $300 billion a year.

So 300 Billion a year in reductions is your number?

[Ben Bernanke]

Guys, the date on that article is Feb 2011

Infowars fail

[PaulStandsTall]

The gradual cutting spending and raising taxes is probably the most gentle (read: logical) thing to do approaching this weak economy. Unfortunately, we have a Congress that is beyond worthless. They will be gridlocked until Europe's collapse worsens IMO. Then they will see we must change our ways. ( At least I still have some hope that they will )

If they continue as they are doing, the unemployment will basically stay around the same amount, but in a slightly upward motion. Money printing and propping up zombie banks goes a long way when you think about it. It's delaying the inevitable, but it is at least holding somewhat steady.

Cutting $1T is scary. It's what we need ultimately yes, but with our unemployment and economy, it's a HUGE risk. Reagan got lucky as the debt was nothing compared to now. We are now in even more uncharted territory. Honestly, who knows what would happen if the cuts came through Congress? It's fun to think it would work but there is no example because the numbers have never been this large. The magic number for unemployment before the government is overthrown might be 30%, we don't know! And Congress sure doesn't want to find out either. Hah!

[Danke]

The gradual cutting spending and raising taxes is probably the most gentle (read: logical) thing to do approaching this weak economy.

You don't think raising taxes will not have a dire effect?

[PaulStandsTall]

You don't think raising taxes will not have a dire effect?

Not if it's done gradually. Yes I know that taxes don't spur growth, but growth is not the objective here. The object is paying our way out of the mess we are in. A slow transition back to fiscal sanity wouldn't be as high risk as cutting $1T (which is not likely anyways, even if RP is president) vis-a-vis unemployment.

But there are no easy answers here. Obviously it can't be done by cutting spending alone. We literally have to take in more revenue to be able to service the debts. Just like a business would need to do.

It's fun to think about, as if we are in charge. How we could fix things, and the different solutions that are feasible. But we are not in charge. Congress is, and Congress is worthless and will keep driving us deeper into debt until Europe's economic situation is disastrous IMO.

[Danke]

Not if it's done gradually. Yes I know that taxes don't spur growth, but growth is not the objective here. The object is paying our way out of the mess we are in. A slow transition back to fiscal sanity wouldn't be as high risk as cutting $1T (which is not likely anyways, even if RP is president) vis-a-vis unemployment.

But there are no easy answers here. Obviously it can't be done by cutting spending alone. We literally have to take in more revenue to be able to service the debts. Just like a business would need to do.

It's fun to think about, as if we are in charge. How we could fix things, and the different solutions that are feasible. But we are not in charge. Congress is, and Congress is worthless and will keep driving us deeper into debt until Europe's economic situation is disastrous IMO.

I say just repudiate the debt. I, nor you, are responsible for it.

Some shore term pain, no doubt. But the creditors can't collect anyway with our military.

Bring it. I'm for a reset.

[PaulStandsTall]

Well for every action...

If we repudiate the national debt, there are still unfunded liabilities (public debt). How will grandma get her Medicare/Social Security? Once the US refuses to repay it's debtors, and the Fed won't print the dollars, then we have: 1)No one to borrow from 2)No way to steal from our unborn grandchildren via Bernake. Obviously it would result in a huge upheaval of desperate hungry souls, and tremendous death. The idea is to avoid all of that bad stuff, and somehow keep along how we are and slowly get pay our way out if we can. All eyes on Europe. Let's hope Congress can learn something from all this.