We have a choice in the U.S.: austerity or much bigger government. That seems to be the only conclusion based on the leaked IMF Report. Austerity, as in Greece resulted in a much bigger drop in GDP than anticipated by the IMF and much higher unemployment than anticipated.
“…the IMF had expected unemployment to rise to 15%, which was unpleasant, but a necessary part of the belt-tightening associated with austerity and reducing the levels of government deficit. In practice, however, unemployment jumped to 25%, a level grossly in excess of IMF estimates, and which also placed the entire economic theory underlying the austerity approach in jeopardy.
For the decrease in tax revenues associated with a 17% contraction in the economy, combined with an official unemployment rate of 25%, is of such magnitude that the government deficit reduction targets can no longer be met.”
Thus, if all of us fiscal hawks got our way and reduced the size of government by cutting expenditures, the country would go into a depression or something close to it. The social order would collapse over the downsizing of government programs. Look at the furor of sequestration, which didn’t result in a cut in spending, just a slowing of the rise.
The second choice is bigger government. What the IMF report means to Daniel R. Amerman, CFA is that the reason the economy isn’t worse is that the government has picked up the slack from the decline in the private sector. The private sector lost $1.3 trillion, but GDP only declined by $300 billion. The government is running $1 trillion deficits. They are printing money out of thin air. The problem is that government spending had slowly increased to 35% of the economy, just took a jump to 43%. The more the government takes crowds out the private sector. The government is making promises it can’t afford and that will lead to collapse or total loss of liberty.
So strap them on. It’s going to get rough out there. You might read a new book to me called “Liberty Gulch.” See what’s in store for us.
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