Goldman sees danger in US budget cuts

[one...two...tree 2,762]

The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned.

The note from Alec Phillips, a forecaster based in Washington, was seized in the ongoing US budget fight by Democrats as validating their argument that the legislation approved by the Republican-led House of Representatives last Saturday would do significant damage to the US recovery.

Chuck Schumer, the Democratic senator from New York, said: "This nonpartisan study proves that the House Republicans' proposal is a recipe for a double-dip recession. Just as the economy is beginning to pick up a little steam, the Republican budget would snuff out any chance of recovery. This analysis puts a dagger through the heart of their 'cut-and-grow' fantasy".

The Goldman analysis also points out that a potential compromise deal with $25bn in spending reductions this year – a more likely scenario – would lead to a smaller drag on growth of 1 percentage point in the second quarter.

Thereafter it would fade, with "negligible" impact on US output by the end of the year. This could make it harder for Democrats to argue that a more modest dose of spending reductions will have a meaningfully adverse economic impact.

Goldman, which is currently forecasting US gross domestic product growth of 4 per cent in the second and third quarters of 2011, also pegged the cost of a government shutdown to the US economy at $8bn in reduced spending per week, based on the experience of the federal closures of 1995 and 1996.

A government shutdown in the world's largest economy will occur if Congress and the White House do not agree on a budget measure by the end of next week. Tough rhetoric from Republicans and Democrats has engulfed Washington in recent days, as both sides are positioning themselves for the final round of negotiations and trying to avoid blame if a shutdown occurs.

With Congress in recess, the ideological and political battle over US budget cuts is playing out in state capitals across America, in cities like Indianapolis, Columbus, and Madison.

Democratic state senators in Wisconsin on Wednesday remained in a tense standoff with Republican governor Scott Walker over a proposed budget bill that would severely curtail union rights to collective bargaining. Democratic lawmakers defended their decision to flee the state last week to prevent the proposal from passing, arguing that failure to defeat Mr Walker's measure would be a devastating blow to unions across the country.

"We are in the battle of our lives against a really right wing agenda. If we can't do it at this point, we will fundamentally change the character of our country and our state for a generation" said Mark Miller, the top Democratic state senator.

While Republican governors like Mr Walker and New Jersey's Chris Christie, who is pushing similar changes to union rules, have become heroes to activist conservatives and Tea Party members who believe fundamental changes to state budgets can only be accomplished with sweeping labour reform, public opinion polls show the strategy carries risk.

A Gallup poll released this week showed that 61 per cent of Americans opposed the kind of legislation that was proposed by Mr Walker in Wisconsin and a slim majority (53 per cent) oppose reducing pay and benefits for state workers.

The polling shows that Republicans risk overreaching. At least two Republican governors, Mitch Daniels of Indiana and Rick Scott of Florida, seem to have taken that message on board, and are distancing themselves from efforts to rein in labour unions.

Mr Daniels this week said he disagreed with efforts by Republican colleagues in his state to pass an anti-union measure, and refused to deploy state police to track down Democratic lawmakers who had abandoned the capital to avoid a vote on the measure.

Financial Times report

Edited February 24, 2011 by 8TBVBN

[Pooky 3,829]

A Gallup poll released this week showed that 61 per cent of Americans opposed the kind of legislation that was proposed by Mr Walker in Wisconsin and a slim majority (53 per cent) oppose reducing pay and benefits for state workers.

Since when did public opinion matter to you?

When it comes to the anti-illegal immigration legislation in Arizona, you dismissed the majority public opinion (which was as high as 70% in favour at the time) as mob rule, to be disregarded. So what's so different here?

[one...two...tree 2,762]

Since when did public opinion matter to you?

When it comes to the anti-illegal immigration legislation in Arizona, you dismissed the majority public opinion (which was as high as 70% in favour at the time) as mob rule, to be disregarded. So what's so different here?

Why not comment on the article itself rather than cherry-pick it to find something to jump on me personally about? This is from the Financial Times. Good grief, you are a bitter, old man.

[Pooky 3,829]

Why not comment on the article itself rather than cherry-pick it to find something to jump on me personally about? This is from the Financial Times. Good grief, you are a bitter, old man.

And straight into the insults we go. Uncomfortable answering questions, are we?

[one...two...tree 2,762]

And straight into the insults we go. Uncomfortable answering questions, are we?

You're the one who took a thread and went off topic for some kind of personal vendetta. Get over it.

[I AM NOT THAT GUY 5,715]

...a Goldman Sachs economist has warned

Goldman sees danger in US budget cuts

ETA: Not to just pick on Steve for the story not being delivered as advertised, but isn't Goldman Sachs the same folks that got us into this slump?

Edited February 24, 2011 by Some Old Guy

[luckytxn 2,265]

Reading another book now on the Federal Reserve and I see that Goldman Sachs has a vested interest in the money spigot to keep flowing.

Wonder what the outcome would be if they slashed the budget so drastic that we have a balanced budget or even better we have a positive and buy back some of our debt? Would it be a positive for the economy? Would not the business environment be better if we could show them a balanced budget?

[Pooky 3,829]

You're the one who took a thread and went off topic for some kind of personal vendetta. Get over it.

The question was very much on-topic and, if you had bothered to frame a reply to it, you might have found out why. But you assumed wrong, as usual, and threw out yet another insult, without ever considering posting an honest response.

If you don't care to debate something that you posted in a civil manner, why post it in the first place?

[Ban Hammer 13,527]

ETA: Not to just pick on Steve for the story not being delivered as advertised, but isn't Goldman Sachs the same folks that got us into this slump?

[one...two...tree 2,762]

The question was very much on-topic and, if you had bothered to frame a reply to it, you might have found out why. But you assumed wrong, as usual, and threw out yet another insult, without ever considering posting an honest response.

If you don't care to debate something that you posted in a civil manner, why post it in the first place?

This is why I gave up long ago having a reasonable discussion with you and I know I'm not the only one. Forget it. I'll just ignore your baiting posts that add nothing to the discussion.

[SuperDuper! 230]

The question was very much on-topic and, if you had bothered to frame a reply to it, you might have found out why. But you assumed wrong, as usual, and threw out yet another insult, without ever considering posting an honest response.

If you don't care to debate something that you posted in a civil manner, why post it in the first place?

I agree with the Pookster. Steven likes to post provocative articles, and then not take any responsibility for doing so. And the insults were really out of line. Post honesty is the best policy.

Peace.

[Mr. Big Dog 10,747]