Does this mean the Fed staffers think fiscal policy works?
How about the Fed Chairman?

Fed Worries ‘Fiscal Cliff’ Is as Big a Threat as Europe

By Steve Liesman

May 10 (CNBC) — Officials at the Fed are increasingly concerned about the coming “fiscal cliff,” putting it on par with the European crisis and the housing market as among the US economy’s biggest threats.

8 Responses

  1. Why the concern? No problems as long as the US has a printing press. Not one govt check will ever go unpaid. Politicians cannot buy elections by stopping/slowing the flow of govt gravy to the voters. The dollar will be the casualty.

    They keep forgetting, the US has a printing press, Greece foes not. That is the only difference.

    1. @JBH,

      “Not one govt check will ever go unpaid.”

      It’s happened before and was threatened less than a year ago.

      “Politicians cannot buy elections by stopping/slowing the flow of govt gravy to the voters.”

      Most voters perceive federal taxation as the source of USG spending, and the argument that lower spending will mean lower taxes, however questionable, has been a winning campaign theme before, most recently for 2010 Tea Party candidates.

      “The dollar will be the casualty.”

      In what way, given that so many economic agents are currently scrambling for them? And in more normal times, I think plenty of voters would vote against significant USD weakness if a campaign successfully tied it to higher inflation. The Clinton-era ‘strong dollar’ was a winning theme all the way through the early aughts.

      This has nothing to do with a “printing press.” American citizens and their nat’l govt are monetarily sovereign, as in Japan, the UK, Canada, etc, while Greek and all other EMU citizens are not.

      1. @Art Patten,

        It is ALL about the printing press.

        People would rather get lower valued dollars than a default(nothing)so this is how politicians will play it. As long as the citizens still get their handouts, they will be happier than if they got nothing.

        Printing also slooows the whole process. Getting a check one month and nothing the next is shocking and abrupt, and gets you voted out of office quickly. Getting the same check every month with lower and lower valued dollars hides the real problem nicely and keeps you in office.

        Handouts like SS, Medic* will never be cut substantially because to do so is political suicide. Taxes and borrowing will not be able to raise nearly enough money. Printing money is the ONLY alternative that keeps the welfare flowing and therefore guarantees re-election.

        If Greece had a printing press they would not be in the situation they are in.

      2. or they might be in even worse shape due to even worse mismanagement

        the eu has what you call ‘the printing press’ in its ECB and look at the mess they’ve made of things

      3. @Art Patten,

        > “Not one govt check will ever go unpaid.”
        > It’s happened before and was threatened less than a year ago.

        In some ways, the Soviet Union was a dry run. So was Chile, and Iraq. Abandoning prior policy can be a strategy, no matter how it’s tactically executed.

        Seems the point is to accurately gauge the risk of policy shifts, including recall of elected policy staff. Things can snowball quickly, in either or all directions. We’ve seen ’em all, even in fairly recent history.

  2. On a related note, sounds like maybe Citigroup economists understand that helicopter drops are fiscal operations?

    Meanwhile, Larry Summers was on Kudlow last night arguing for more forceful stimulus, which is rather ironic, given that he reportedly censored the most powerful plan developed by Romer’s CEA, so that Obama never even saw it — and still yapping about long-term fiscal solvency of the USG. 🙁

  3. “liberal economists contend that … the government can and should keep running high deficits to prop up the economy”

    Guess we know where we stand politically?

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