Goldman admits we're screwed.

[Zebo]

http://blogs.abcnews.com/thenote/20...-spending-cuts-will-hurt-economic-growth.html

A confidential new report prepared by Goldman Sachs for its clients says spending cuts passed by the House of Representatives last week would be a drag on the economy, cutting economic growth by about two percent of GDP.

“Under the House passed spending bill [which cut spending by $61 billion],” says the report, which was obtained by ABC News, “the drag on GDP growth from federal fiscal policy would increase by 1.5pp to 2pp in Q2 and Q3 compared with current law.”

You gotta read between the lines here but what Zebo has been saying for years is we are in a debt death spiral Goldman recognizes too. Cut deficit, plunge economy into disaster. Debt is the only thing keeping us from recognizing a full-on economic depression we are in. How bad? Just extrapolate what Goldman says by taking away $1.7 trillion deficit would result in a decrease of 28x Goldman's estimate, or 50% of GDP would disappear.


Now you know why republicans are RINOs always despite rhetoric.

Worse, there's no way out - If you raise taxes to cover deficit you subtract directly from private spending by same levels plunging us into same 50% reduction in GDP. Refuse to raise taxes and you are forced to continue to borrow.

 

[Patranus]

Ya. Because if the federal government cuts spending, Goldman cannot lobby for projects or federal policy and then cannot bet for or against it.

That is the only reason why these companies don't want the federal government to cut spending.

If the federal government returns to its natural role and doesn't pick winners and losers, these large companies loose all of their leverage.

 

[Engineer]

Ya. Because if the federal government cuts spending, Goldman cannot lobby for projects or federal policy and then cannot bet for or against it.

That is the only reason why these companies don't want the federal government to cut spending.

If the federal government returns to its natural role and doesn't pick winners and losers, these large companies loose all of their leverage.

That may be true but you don't think removing money spent by the government from the economy will not lower economic growth (if not outright kill it)?

 

[Zebo]

Ya. Because if the federal government cuts spending, Goldman cannot lobby for projects or federal policy and then cannot bet for or against it.

That is the only reason why these companies don't want the federal government to cut spending.

If the federal government returns to its natural role and doesn't pick winners and losers, these large companies loose all of their leverage.

This is true but the pain to balance will be cataclysmic resulting in worse than Great Depression numbers. I just wonder how long we can keep borrowing before we are forced to accept the pain which gets worse everyday.

 

[Scotteq]

This is true but the pain to balance will be cataclysmic resulting in worse than Great Depression numbers. I just wonder how long we can keep borrowing before we are forced to accept the pain which gets worse everyday.

This just in: Bernie Madoff has determined the US Government is a gigantic Ponzi Scheme

And of all people, he would know.

 

[Macamus Prime]

And, let me guess, former Goldman Sach employees would be at the controls of where and how this money is spen,... oh, wait.

 

[the DRIZZLE]

That may be true but you don't think removing money spent by the government from the economy will not lower economic growth (if not outright kill it)?

It depends on what you think the multiplier is. If its zero or near zero than it won't have a significant effect on growth.

 

[masteryoda34]

This just in: Bernie Madoff has determined the US Government is a gigantic Ponzi Scheme

And of all people, he would know.

This is just golden.

 

[CycloWizard]

Government fashioned the economy around itself. It spent money it didn't have to determine the winners and losers. Now people are surprised that the government's debt is being called in and things will quickly turn south when it stops propping everything up? Really? It's going to happen sooner or later. Only when the bleeding hearts realize that no government can provide for the needs of its citizens will things pick up again, and even then only after a painful interim.

 

[Engineer]

It depends on what you think the multiplier is. If its zero or near zero than it won't have a significant effect on growth.

Explain for us non-economic types.

 

[Anarchist420]

Goldman Sachs has an agenda. That is, they're lying their asses off, kind of like when they said they needed to be bailed out because they said they were too big fail.

Balancing the budget will help all who aren't on the Federal Payroll.

 

[zephyrprime]

Explain for us non-economic types.

Spend a dollar at the baker's and then the baker will have some money to spend at the grocers. That's the idea. In this case, the government is the original spending rather than yourself.

However, debt service burden becomes higher and higher and eventually added debt dollars have a multiplier below 1.0. At this point, events like the Great Depression occur.

Look at the Federal Reserve's own chart regarding this issue:
http://research.stlouisfed.org/fred2/series/MULT

 

[BoberFett]

LOL at big government types, Republican and Democrat alike.

 

[The-Noid]

Sounds great, where do we sign up?

 

[airdata]

Isn't America "too big to fail" ?

 

[Murloc]

Isn't America "too big to fail" ?

yeah, but who's gonna bail one of the biggest economies in the world?

 

[BoberFett]

yeah, but who's gonna bail one of the biggest economies in the world?

It has been happening for years. What do you think all that federal borrowing has been? It's a bailout, whether we use the term or not. That we squandered the bailout money isn't the fault of the lenders.

 

[irishScott]

That may be true but you don't think removing money spent by the government from the economy will not lower economic growth (if not outright kill it)?

And just how do you think economic growth will be affected when the government defaults on all of its loans?

 

[Engineer]

And just how do you think economic growth will be affected when the government defaults on all of its loans?

Well then Zebo is right...we're screwed no matter which way we do it.

 

[The-Noid]

Well then Zebo is right...we're screwed no matter which way we do it.

Zebo is right.

 

[Svnla]

So what are we going to do? Can't continue with the deficit spending and the debt size increasing forever. Eventually, the debt holders (China, Japan, UK, et al) will cut off their drugs...eh..I mean..their purse string.

 

[RedChief]

Economist John Taylor on why Goldman is wrong.

There are several things wrong with the analysis used in Goldman Sachs report. First, it does not take account of the beneficial effects of starting now on a credible plan to reduce the deficit. Basic economic models in which incentives and expectations of future policy matter show that a credible plan to reduce gradually the deficit will increase economic growth and reduce unemployment by removing uncertainty and lowering the chances of large tax increases in the future. The high unemployment we are experiencing now is due to low private investment rather than low government spending. By reducing some uncertainty and the threats of exploding debt, the House spending proposal will encourage private investment.

The analysis in this Goldman-Sachs report is based on the same type of “large multiplier” theory that predicted that the stimulus package of 2009 would stimulate economic growth. Research by me and my colleague John Cogan finds that more up-to-date theories, which bring important incentive and expectations effects into account, show far smaller multipliers. In these models a reduction in the growth of spending will immediately crowd in private investment. Moreover, by following the stimulus money, we found that in actuality the stimulus package of 2009 had no material positive effect on economic growth or employment. The same economic theory which said the stimulus would increase economic growth in the past two years, says that reversing that spending will reduce growth now. It was wrong in the past and it is highly likely to be wrong again.

 

[bfdd]

How could Goldman be wrong? They have insider knowledge seeing as they run most of the White House.

 

[Jaskalas]

How could Goldman be wrong? They have insider knowledge seeing as they run most of the White House.

Cause the White House and its minions always tell the truth. They wouldn't possibly lie to further a political and economic (self) entitlement agenda.

 

[Phokus]

Economist John Taylor on why Goldman is wrong.

LMAO, John Taylor is such a liar.

1) A lot of the stimulus was tax cuts. I don't get why conservatives think it was all spending increases.

2) Tax cuts have a much lower GDP multiplier than spending increases.

3) Multiple economists have said that the stimulus was way too damn small when it was first proposed

4) All the extra capital from reductions in public spending will just move to other developing countries because that's where growth is greatest.