Wednesday, February 27, 2013

Fed Chm Bernanke: Sequester cuts will make it harder to reduce deficit

Federal Reserve Chairman Ben Bernanke had something to say about sequestration during his testimony before the House Banking Committee on Tuesday. He thinks the looming spending cuts could actually make it harder, not easier, to reduce the deficit. Why? They’ll hurt growth:

The CBO estimates that deficit-reduction policies in current law will slow the pace of real GDP growth by about 1-1/2 percentage points this year, relative to what it would have been otherwise.

A significant portion of this effect is related to the automatic spending sequestration that is scheduled to begin on March 1, which, according to the CBO’s estimates, will contribute about 0.6 percentage point to the fiscal drag on economic growth this year. Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant.

Moreover, besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions.
The logic here is simple enough. The sequestration cuts will drag down economic growth this year, which will mean that fewer Americans will have jobs and less tax revenue will pour in. Nothing cures deficits like stronger economic growth. And right now, Congress’s policies are standing in the way of stronger growth.


  1. Isn't it interesting that when the government cuts it's budget, it is costing jobs in the private sector because tax dollars will not be spent on government.

    Yet, when the government takes tax dollars from the private sector, there is no "economic impact."

    Washington hogwash. There is no budget CUT. The government is constantly expanding and the sequester does not stop that expansion. It slows the growth, at NO cost to the taxpayer or the overall economy.

  2. Tom, come on, you can do better than repeat the worn out talking points from Fox. On your show Friday (St. John), I would like your opinion on why Boehner and McConnel are meeting with Obama at the White House. Shouldn't they just skip the meeting? Or is the Boehner/McConnel faction of the GOP not true conservatives? Also, how about an update on the Laredo Tea Party -are you all still active? If so, how come no one attends the local govt meetings where lots of taxpayer money is squandered?

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