Quote:
Originally Posted by DrVenture
I look at this as the same thing that all businesses do - layoff the workers to cut costs. Because it is the easiest thing to do. Not necessarily the smart thing to do. The federal government is a huge employer. There is no free lunch. How many people with good jobs, need to be laid off to make a dent in a $1.83 trillion dollar annual deficit?
Now let's take it a step further. That $1.83 trillion is going out to a plethora of businesses from defense to tech to infrastructure, etc. Government spending makes up nearly a quarter of our annual GDP. When those funds dry up, all those businesses start to layoff workers - bigly. Some fail entirely, letting their entire workforces go.
So, a lot of good jobs go poof! Historic numbers. Possibly numbers like we have never seen in our lifetimes. Those people all stop spending and start defaulting on homes and autos and credit cards. Visa, Ford, GM, Lennar...
Next, what happens to the earnings of the companies that make up the broader stock market - P&G, HON, WMT, AMZN, MSFT, RTX when both public and private spending drops? Investors flee to risk-free assets and their stock prices go into free fall.
The ripple effects here are potentially catastrophic.
As Mike Tyson said, "Everyone has a plan, until they get punched in the face".
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We need tight fiscal policy and loose monetary policy. Cutting gov't spending will pull aggregate demand from the economy and help to lower prices, but then if you loosen monetary policy investment will pick back up, replacing the lost demand from gov't. This will increase the tax base, and tax receipts, while bringing the deficit towards neutral. It's absolutely the right play, especially with a 36t debt.