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You are here: Home / Politics / Domestic Politics / Two percent seems high

Two percent seems high

by DougJ|  February 24, 201110:14 am| 36 Comments

This post is in: Domestic Politics

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I think banksters are pretty serious about trying to make these kinds of forecasts accurate but I can’t see how an extra $61 billion in cuts screws GDP by a full 2 percent:

A confidential new report prepared by Goldman Sachs for its clients says spending cuts passed by the House of Representatives last week would be a drag on the economy, cutting economic growth by about two percent of GDP.

Update. But, yeah, my bankster friend thinks budget cuts are a terrible idea now too. The one thing I don’t get is why banksters aren’t more vocal about this.

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36Comments

  1. 1.

    arguingwithsignposts

    February 24, 2011 at 10:20 am

    they get their paychecks either way. QED

  2. 2.

    QDC

    February 24, 2011 at 10:22 am

    The article kind of screwed it up. The two-percent number is the annualized GDP impact of the cuts in the quarter in which they would mostly be implemented, not an actual realized effect. It’s still high, though. And it’s still an extremely bad idea in a very fragile recovery.

  3. 3.

    azlib

    February 24, 2011 at 10:23 am

    I’d have to understand their methodology better to see where they get to 2%. Goldman’s economic analysts have a pretty good track record and they do understand macroeconomics and things like multiplier effects of government spending which the GOP rejects out of hand.

  4. 4.

    Suffern ACE

    February 24, 2011 at 10:23 am

    Perhaps because we’ve only been debating little bits and pieces of the red meat bits of the bill. Did they really get to 61 billion by defunding public radio and family planning, or did they do more than that…

  5. 5.

    Crusty Dem

    February 24, 2011 at 10:24 am

    A 2% decrease in GDP is huge. A 2% “decrease in growth” is next to nothing (3% growth is cut to 2.94%).

  6. 6.

    QDC

    February 24, 2011 at 10:27 am

    @Crusty Dem:

    Actually, it’s a decrease in growth of 2% of GDP, not a 2% decrease in growth, so it’s big.

  7. 7.

    Genine

    February 24, 2011 at 10:27 am

    The one thing I don’t get is why banksters aren’t more vocal about this.

    Well, if this report is true, the banksters are in kind of a bind. On one hand, fear about the deficit keeps their base in line and voting for their interest. But, on the other hand, the thing that keeps their base in line is a terrible idea.

    Maybe they’re seeing a downside to cultivating the stupid.

  8. 8.

    Julia Grey

    February 24, 2011 at 10:29 am

    The one thing I don’t get is why banksters aren’t more vocal about this.

    They know the Senate and Obama will protect them from themselves by not allowing most of it to actually be implemented.

    Yet they still get to promote austerity fever in order to keep their own taxes low.

    Staying quiet is win-win.

  9. 9.

    Marmot

    February 24, 2011 at 10:30 am

    @Crusty Dem: Looks like they’re talking about the big one — a decline measured in percentage points, not percentage.

    “Under the House passed spending bill [which cut spending by $61 billion],” says the report, which was obtained by ABC News, “the drag on GDP growth from federal fiscal policy would increase by 1.5pp to 2pp in Q2 and Q3 compared with current law.”

    Annualized, says QDC above.

  10. 10.

    Mudge

    February 24, 2011 at 10:33 am

    Probably the cuts, although bad for the economy, are not that bad for the banksters.

  11. 11.

    Axel Edgren

    February 24, 2011 at 10:34 am

    Penny dumb, pound apedick retarded?

  12. 12.

    Crusty Dem

    February 24, 2011 at 10:37 am

    @QDC:

    Yeah, I guess so (the ABC reporters lingo was weird, I should really read the whole article before I comment). But I’m with DougJ Hussein Hill, writer at Balloon Juice, (I should be able to remember more of his aliases), tough to get from $61 billion to 2% of GDP.

  13. 13.

    Ash Can

    February 24, 2011 at 10:37 am

    What strikes me right off the bat about this is that:

    — this is Goldman Sachs

    — badmouthing government spending cuts

    — proposed by Republicans

    I recall from my days in the biz that there was actually a fair amount of bipartisanship in it, specifically, if the government tried to meddle too much in the economy, it was resented, regardless of whether it was a Dem or Repub doing the meddling. Spending cuts, however, were generally regarded as a Good Thing (TM) by all the plucky free-marketeers in the biz. This is a glaring (to me, anyway) departure from that kind of thinking, and has me wondering whether this is influenced by 1) GS’s ties with the administration, and/or 2) some actual waking up and getting a big ol’ whiff of double espresso on GS’s part. Either way, it’s interesting.

  14. 14.

    Stillwater

    February 24, 2011 at 10:40 am

    DougJ: Mr. Phillips, you say that GDP will decline by 2% if these cuts are enacted.

    Alec Phillips: I have no firm opinion on that matter.

    DougJ: It says 2% reduction right here in the report you wrote!

    Phillips: Sir, I’m unaware of the report you’re referring to…

  15. 15.

    gene108

    February 24, 2011 at 10:42 am

    Wall Street / Big Banks are apolitical. They backed Obama and Democrats in 2008 and then backed Republicans in 2010, because they felt each side helped their interests in 2008 and 2010, respectively.

    They are interested in what is good for them and will back any political part, they feel represents their interests.

    It’ll be interesting to see of these guys have the same sort of buyers remorse, in 2012, with Republicans they had with Democrats in the 2010 election. A few hundred million not being spent to back Republicans and / or spent to back Democrats would be a huge shift in electoral fortunes for Democrats.

  16. 16.

    Dr. J

    February 24, 2011 at 10:56 am

    Economic Policy Institute (epi.org) estimates the $61B translates into a loss of 800K to 1M jobs. Seems sufficient.

  17. 17.

    cat48

    February 24, 2011 at 10:57 am

    The UK’s economy contracted last quarter after their first cuts and the next quarter could be worse b/c the cuts were deeper this time. Leonhardt at the NYT wrote about austerity versus the stimulus a few days ago.

  18. 18.

    mikefromArlington

    February 24, 2011 at 11:02 am

    “The one thing I don’t get is why banksters aren’t more vocal about this.”

    My guess is they will when campaign contribution time comes along.

  19. 19.

    Stillwater

    February 24, 2011 at 11:05 am

    Wall Street / Big Banks are apolitical.

    They’re very political. They just give enough cash to each side to get a seat at the table no matter who wins.

  20. 20.

    MikeTheZ

    February 24, 2011 at 11:05 am

    @Crusty Dem: its because those cuts are all targeted at programs for the bottom 80% who would have spent it. So it pulls roughly 60 billion out of the economy which puts the brakes on recovery and growth stops on its tracks

  21. 21.

    Cheryl Rofer

    February 24, 2011 at 11:06 am

    The problem is that the cuts are for this fiscal year, which is almost half over. So multiply them by two or more for their effect on the remaining fiscal year. If they keep going long enough, federal agencies will have to fire all their people for the rest of the year.

    A bit more here, and I think I’ve written more on these stupid budget games. If I find it, I’ll post it.

  22. 22.

    p.a.

    February 24, 2011 at 11:07 am

    @gene108: I believe 2008 was the 1st time in a generation (at least) that more Wall St. money went to a Dem. presidential candidate than a Republican. I believe the snark at the time was: “Bush even managed to lose Wall St. for the Republicans.”

  23. 23.

    NonyNony

    February 24, 2011 at 11:16 am

    But, yeah, my bankster friend thinks budget cuts are a terrible idea now too. The one thing I don’t get is why banksters aren’t more vocal about this.

    Explanation one – “terrible idea for the country” and “terrible idea for my investment portfolio” are not the same thing. Knowing that country is doing something stupid and money-losing to let you shuffle your investments around to prepare for it is very different from advocating that the nation take a different path. In fact, if you think you can “short” the country it might be to your short-term monetary advantage to let the fools in Congress screw the country up. After all, there’s a good chance that if you have enough money Canada or Europe will let you emigrate if things get too bad here.

    Explanation two – knowing that the country is on the wrong path and should be spending more money comes with the understanding that that money needs to come from somewhere. And that means raising taxes. And banksters at that level are the ones who would be seeing their taxes raised. So short term monetary interest wins out again.

    Basically they don’t want to give up their money and/or they know a good scam when they see it and don’t want to spoil it. Either way the ones who aren’t speaking out are unpatriotic asses who are content to see their country fail so long as their personal nests are feathered.

  24. 24.

    singfoom

    February 24, 2011 at 11:23 am

    Goldman Sachs is a criminal enterprise. They should be broken up ala Teddy’s trust busting…..and those responsible for the crimes of the financial disaster of 08/09/10 should go to jail.

    I see no reason to believe a word that anyone associated with that company says.

  25. 25.

    FormerSwingVoter

    February 24, 2011 at 11:24 am

    The one thing I don’t get is why banksters aren’t more vocal about this.

    Because they’re morally deficient parasites. SATSQ.

  26. 26.

    SteveinSC

    February 24, 2011 at 11:26 am

    @Marmot: Wait, they have factored in George Bush’s “magic of compound interest” so that explains everything.

  27. 27.

    b-psycho

    February 24, 2011 at 11:31 am

    Maybe Goldman Sachs just realized that since their business model actually depends on constant government favoritism they’d be hypocritical to bitch about spending on anyone else?

  28. 28.

    Pongo

    February 24, 2011 at 11:38 am

    Almost the entire $61 billion comes from discretionary spending, which accounts for a mere 13% of the budget. This includes massive cuts to the NIH, FDA and CDC–which, except for FDA, have been flat funded for nearly a decade, which is pretty much the same as taking a cut every year. The NIH will take a devastating $1.6 billion dollar hit right at the time genetic research is getting into full gear. It’s good to remember that pretty much all of the drugs we rely on today owe their development to NIH and FDA grants. This isn’t money thrown at esoteric, pointless scientific questions, despite what Sarah Palin believes (here: http://priorbadacts.wordpress.com/2008/10/25/dear-governor-palin/ and here: http://andrewsullivan.theatlantic.com/the_daily_dish/2010/07/why-does-trig-matter-ctd-2.html#more) but rather research that impacts the daily lives of all of us.

    Besides that, the very inequity of the cuts they are proposing really rankles. They won’t jeopardize their re-electability by touching entitlements or the military–by far the most bloated parts of the budget. House Repubs have no quarrel with using taxpayer money to pay corrupt defense contractors $400 per toilet seat, but heaven forbid a sick child have access to taxpayer-funded research. They are also juveniles when it comes to being told ‘no’, which the Senate will almost certainly do when this budget comes before them for a vote next week. All indications are that many in the Senate on both sides of the aisle think this bill is reckless and poorly thought out, but the House is seriously proposing to shut down the govt if they don’t get their amateur-hour budget passed.

  29. 29.

    bcinaz

    February 24, 2011 at 11:38 am

    The one thing I don’t get is why banksters aren’t more vocal about this.

    Defunding the new Consumer Protection Agency is included in these cuts. Shrinking GDP by damaging those at the lower end won’t really do anything to the banksters bottom line (IMO). Defundng Warren’s new agency would.

  30. 30.

    burnspbesq

    February 24, 2011 at 1:40 pm

    @singfoom:

    “Goldman Sachs is a criminal enterprise.”

    I call. Prove it, with evidence that would be admissible in Federal court, or sit down and shut up.

  31. 31.

    arguingwithsignposts

    February 24, 2011 at 1:53 pm

    @burnspbesq:

    I call. Prove it, with evidence that would be admissible in Federal court, or sit down and shut up.

    Give singfoom some subpoena powers or sit down and shut up yourself, burnsie.

  32. 32.

    fucen tarmal

    February 24, 2011 at 2:47 pm

    you are forgetting how irrational the kings of the rational market can be.

    what you are looking at is a tout sheet, for betting purposes.

    that is what they will do with their money, depending on what happens, its the rational portion.

    but you ask; why aren’t they against the austerity movement?

    this is the irrational part. its one thing to be rich, but once you are rich, you want to close the door behind you. the austerity thing won’t preserve the casino, or its luscious payouts, but it will prevent others from possibly becoming rich.

    what is the point of being rich if anyone can do it? that is why they are conflicted between getting even richer themselves, and seeing more rich people who take away their feeling of being special.

  33. 33.

    Alwhite

    February 24, 2011 at 2:48 pm

    But, yeah, my bankster friend thinks budget cuts are a terrible idea now too. The one thing I don’t get is why banksters aren’t more vocal about this.

    Simple, your bankster friends don’t want Dems to succeed, they want them to fail so that they can have their REpublican friends cut their taxes some more.

  34. 34.

    SnarkyShark

    February 24, 2011 at 2:57 pm

    burnspbesq

    It’s been shown over and over that not only will the feds NOT investigate, but are actively complicit. Since the federal judiciary is essentially worthless at bringing to justice any of the the elites over a certain social strata, commenting at a blog is about all we have left.

    In your authoritarian worshiping haze(in this case the fed justice), are you seriously implying we don’t even get that?

    Those e-mails showed outright fraud. Calling it a ‘strategy’
    doesn’t change a damn thing.Goldman was and probably still is an ongoing criminal enterprise designed to steal as much resources as possible before the coming crash.

    So I gotta back arguingwithsignposts on this one.

    I am sure he/she/it is overjoyed

  35. 35.

    acontra

    February 24, 2011 at 5:19 pm

    a plurality of the electorate thinks these proposed cuts aren’t deep enough:
    http://www.usatoday.com/news/washington/2011-02-24-budgetpoll24_ST_N.htm

    gee, I wonder why the electorate is so misinformed on this issue. maybe it has something to do with the Village’s nonstop disinformation campaign on the deficit.

  36. 36.

    Sleeping Dog

    February 24, 2011 at 9:00 pm

    The banksters make money either way so they don’t care, but they understand the economics. They’re willing to let the Repugs ruin the economy as long as they don’t regulate them.

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