13 May 2010

While Deficit Worsens, Political Class Engaged In Denial And Partisan Warfare

NBR Commentary-The Flash Crash & The Budget Crisis
Maya Macguineas, president of the Committee for a Responsible Federal Budget.

With cautionary warning signals over the past months from entities as diverse as the Chinese government, to the rating agencies, to our very own Congressional Budget Office and Fed, you have to wonder, how many warning signs do we need exactly before we act?

Sooner or later, one of those warnings could prove to the beginning of a full blown fiscal crisis.

It's true that with the economy so weak, this is not the year to start aggressive deficit reduction, but anyone who believes there is a risk of the government bringing the deficit down too much in the short run is worrying about the wrong thing.

With the political class actively engaged in denial and partisan warfare, the number of politicians offering plans to reduce the deficit can be counted on one hand, with most of the others offering plans that would make things much, much worse.

What we need to do is immediately announce a credible plan to bring the deficit and debt down over the next decade. Changes could be phased in gradually, allowing the economy to recover and people time to prepare, but as long as the plan was credible, it would reassure markets and buy us some breathing room.

Or we could go the alternate route, where we continue to do nothing and each new market hiccup risks being the one that turns into the full blow fiscal crisis tipping point.

I wish I were more certain we would choose the first path.

Here's a link to the Committee for a Responsible Federal Budget.

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