It’s About Growth, Stupid!

Paul Krugman, Laureate of the Sveriges Riksban...

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I really start to worry when I find myself agreeing with Paul Krugman.  I know he has a Nobel Prize but mostly I find his views on spending and the role of government in our society too intrusive.  But he said recently that the markets don’t think the US is Greece (yet!).  Nor do they think the US will default on its debt.  But they do worry that there are too many downward pressures on growth to get much of it and that is our biggest problem.

Krugman is not recommending that we roll back ObamaCare, or some of the EPA regulations that spew daily from its printing presses.  But both those things would be a good start.  But even that will not be enough.

As Dan Drechsel said in Accurate Reality the debt deal did not do nearly enough to signal the markets that we are serious about reducing our deficit and debt.  He’s right, of course.  Washington speak for “cut” really means they are reducing the rate of growth not actually cutting anything.  So the debt deal peddled as a cut in spending actually adds $7 trillion more to the national debt net over the next ten years.

The S&P downgrade of US credit ratings to AA+ from AAA is another wake-up call.  Will we roll over and hit the snooze button one more time or actually wake up and do something constructive?

When the markets are persuaded that the government is serious about growth we will see business start to spend its hoard of cash and create jobs.  Private sector spending (not government spending) and its ripple effect across the economy will turn the tide.  But the 2012 election is a long time away and our politicians seem unable, unwilling and unresponsive to our real need for growth.

We need action now—the ship of state is going back into recession. The panic that caused this week’s 513 point meltdown in stocks is driven by the fear that our government is feckless—just like Italy in facing up to our realities.  The bright spot is that the global search for safety brought many to US Treasuries in a fervent prayer that America will wake up, get up and find a way to grow again—as we have always done before in times of crisis.

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