Beware Ben Bernanke’s Massive Fiscal Cliff
Federal Reserve Chairman Ben Bernanke has warned that, unless someone actually does something, a cascade of tax increases and spending cuts scheduled for January will, together, wash this lightweight economic recovery over a metaphorical cliff.
April 1, 2012
On some unsatisfying level, we appreciate the current political conniptions in Washington over your tax dollars and your frightening taxpayer debt. These are big issues that deserve the passions they generate on left and right. They also deserve gutsy and decisive remedies — which, unfortunately, they’re not getting. But before we go to the video of what has and hasn’t happened, let’s stroll over to Ben Bernanke’s “massive fiscal cliff.” Be careful where you step:
In a Leap Day monologue to a House committee, the Federal Reserve chairman warned that, unless someone actually does something, a cascade of tax increases and spending cuts scheduled for January will, together, wash this lightweight economic recovery over his metaphorical cliff. Bernanke is too prim an academic to say, “Then you can kiss your GDP goodbye,” but he came close: The removal of so much money from the day-to-day U.S. economy, he said, could trigger another financial crisis, spike interest rates up, and drive growth down. Can you say “Europe”?
Alan Blinder can. He’s a Princeton economist and former Fed vice chairman. Writing in The Wall Street Journal, he predicts that falling off “the cliff” will slash U.S. economic output by 3.5 percent, a wound equivalent to austerity measures that indebted European governments are enduring. That abrupt a contraction “would be a disaster for the United States, highly likely to stifle the recovery.”
You’d think the presidential and congressional candidates of both parties — the men and women who forever tell us how devoted they are to “American jobs” — would have acted by now to assure employers, and their workers, and the world’s financial markets, and the foreigners who buy our copious debt, that Washington doesn’t need to suffer another crisis in order to prevent it.
Nah, Washington isn’t there yet. it’s an election year and, well, you know.
The big picture here is that while we need spending cuts and revenue hikes — in a ratio of 3-to-1 or 4-to-1, we think — losing all of this liquidity at once would torpedo the economy. Yet here’s the January agenda: