Tax Analysts Blog

'There Will Be No Economy on Monday'

Posted on Jul 1, 2009

It was only last fall that Fed Chairman Ben Bernanke uttered those terrifying words to congressional leaders, warning them of what would happen if they failed to take radical steps to support the financial sector. Most of the world is still reeling from the Great Panic of 2008. The U.K. is bracing itself for huge cuts in public services, as John Kay describes in his column today ("Britain Has Sunk Itself Deep Into a Fiscal Black Hole"). Germany has amended its constitution to require a balanced budget. Now from Sweden -- which just began its six-month term of the rotating EU presidency -- there is a dire warning about the need to cutback on expansionary fiscal policy that Europeans can no longer afford, especially because there may be a need for more bailouts of the financial services sector. And in the world's 8th largest economy, California, government leaders -- despite passing two emergency budgets in the last nine months with major cutbacks in education and social services -- cannot reach a compromise on a third and now must pay their bills with IOUs.

It seems only inside the Beltway bubble can the troubles ignited by the financial crisis be easily ignored. Despite giving his budget the grandiose title "A New Era of Fiscal Responsibility" President Obama has taken not a single concrete step to scale back the skyrocketing public debt. Despite all the talk about the need to rein in the costs of healthcare, there is little in the actual proposals under consideration that would do more than not make matters worse. The administration's goal of cutting the deficit in half is ridiculously shallow given the record-breaking starting point. And though there is a fuss being made over extending yet another version of pay-as-you-go budget rules, they would do little more than ensure we do not stray further than we are from fiscal rectitude. In other words, they do nothing to improve the situation -- they only prevent things from getting worse.

Massive spending cuts and tax increases are in our fiscal future. The rest of the world knows it. Administration economists know it but are not allowed to say anything about it. Some day after official Washington gets done fiddling with healthcare reform and climate change -- seemingly enormous legislative issues -- Congress and the President will get down to the real heavy lifting.

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