This is exactly why we are screwed, even if the debit limit is passed. Nobody is considering increasing spending. Even the Democrats have limply acquiesced and are proposing cuts as well. But what we really need now is more spending.

It dovetails well with the article Blueraven posted a few days ago. Consumer demand is low because people are hanging onto their money - they are worried about their jobs and the economy. And companies won’t hire unless they see consumer demand increase. Now is the perfect time to inject some money into the economy with infrastructure improvements, tech funding, and other initiatives. And as Obdicut points out, it would be relatively cheap now. But instead we will be cutting spending, lengthening the duration of the recession.

From my perspective, government should act as a counterbalance to the business cycle. During a downturn they should ignore the deficit. That is the time to spend and cut taxes that discourage business growth. Then during the boom times they should focus on reducing deficits by increasing taxes and cutting spending. The effect is to smooth the business cycle, both the dips and the peaks. Velocity is good, but too much can lead to market irrationality.