Romney Admits Budget Cuts Would Throw Economy Into ‘Recession Or Depression’

[SunsetDreams]

During an interview with Time Magazine’s Mark Halperin, 2012 presumptive Republican presidential nominee Mitt Romney admitted that drastic spending cuts will hurt the economy, creating a “recession or depression“:

HALPERIN: You have a plan, as you said, over a number of years, to reduce spending dramatically. Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?

ROMNEY: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course. What you do is you make adjustments on a basis that show, in the first year, actions that over time get you to a balanced budget.

This, of course, is the point that progressives have been making in response to the House Republican budget, which Romney supports. According to estimates from the Economic Policy Institute, the cuts in the House GOP budget — authored by Budget Committee Chairman Paul Ryan (R-WI) — would cost the economy 4.1 million jobs over the next two years due to the $400 billion in spending cuts for which it calls. As Esquire’s Charles Pierce, who flagged this particular exchange in the interview, wrote, “didn’t Romney, in saying that, pretty much blow up the entire rationale for over 30 years of Republican economics right there? Cutting government spending will throw us into a recession or depression?

http://thinkprogress.org/economy/2012/05/25/490532/romney-budget-cuts-recession/

Nothing but air there, and it's so hot it's scorched his lying tongue.
Romney: "My positions are, well you see, it uh...depends on who I am talking to, and whether I can remember what I said yesterday"

[Cronkite]

1. Spending cuts or tax increases will do it. (we're pretty much screwed)

Right now we are injecting borrowed money into the economy. I don't have the latest numbers but it is roughly 10% of GDP. This is not sustainable long term and at some point it will have to stop. When it stops we will see an instant drop in GDP on the order of 20 to 25% due to the multiplier of the money also being lost.

Raise taxes to cover this? All raising taxes will do is extract the money out of the economy by taxation. It will have the same result as if we stopped borrowing and spending. GDP would decrease by the amount of the tax increase while spending could be maintained.

Cut spending to cover this? Same result- the decrease in spending will be extracted from GDP and cause an immediate drop in GDP.

Continue on borrowing? We are already over 100% GDP and every year we are adding 10% more.

To borrow a phrase from President Obama "it's time to eat our peas". It is going to be very rough but if this isn't addressed it will continue to get worse and making the inevitable correction hurt even more.

I was against the Bush bailouts of the TBTF banks, I was against the stimulus plans since. If we had taken out lumps in 2007 like Iceland did we would be in full recovery mode right now. It would have been very painful but quick. All that has happened with the current policy has been an extension of the pain and nothing has been done to correct the problem (except throw borrowed money at it).

This is just my humble untrained opinion which I am sure many will find fault with.....

[drm604]

2. How about tax increases with an increase in spending?

Increase taxes on those who would feel little or no pain from the increases, and spend those dollars on infrastructure. This would not extract money from the economy. It would shift money from those who make money by moving it around, to those who will spend it into the actual economy of services and physical goods.

[Cronkite]

3. That does nothing to address the 10% of GDP we are borrowing & spending.

Yes, your idea would have a little affect on GDP as it would just shift money from the private sector to the government component.

The problem is what to do about the 10% of GDP we borrow every year. That has to be stopped and either we increase tax revenue by 1.5 trillion, cut spending by 1.5 trillion or some combination of the two.

We are creating GDP out of thin air by borrowing. The issue is what happens when we can no longer do this?

[quaker bill]

4. A common misconception

is that hoarded wealth is "in the economy". It is actually on the sidelines of the economy.

A second misconception is the notion that "we can't borrow money" sustainably. We have been "borrowing" money since the Reagan tax cuts by the tanker load, with the exception of two years at the end of the Clinton Admin. In short, for 30 of the last 32 years.

It is a large pile of "debt" to the extent one can have debt in a currency we own and print. However the easiest solution is to just grow GDP. A bit of inflation would help there, say 3 of 4 percent. It is called monetizing the debt, and it is an American tradition.

[Prophet 451]

5. I was going to reply

but you said everything I wanted to.

Keynesian economics still works.

[Cronkite]

6. And how it that working out for us?

Since Reagan total overall debt in the economy has risen by an average of 7% per year while GDP only grew at 4%, Exponents say this isn't sustainable.

Oh, and monetizing debt and inflation is all fine and dandy but it's rough on the middle class if wages are declining (have been for the past decade).

[cthulu2016]

7. It is not sustainable forever. True.

That does not, however, mean that there is any short-term or medium-term benefit to reducing the debt.

What addresses the debt best is economic growth. Add some GDP and two things happen simultaneously. Revenues jump (taxable economic activity) and spending decreases (food stamps, unemployment insurance, medicare)

And , paradoxically, the only method we have to increase GDP to try to get a self-sustaining recovery to take hold is to increase the deficit dramatically.

We need more debt now to have any hope of a stable fiscal future.

This drives some folks crazy, but it's true.

The hardest part is having the political will to rasie taxes if/when a recovery takes hold, but we will have to cross that bridge when we come to it.

[girl gone mad]

9. The Federal government doesn't need to borrow..

and government debt is not true debt.

In fact, what you call borrowing is not actually borrowing at all. Take a minute to think about what the act of borrowing entails and then think about what our Fed. gov does when it "borrows".

[girl gone mad]

8. Recent Republican Presidents have governed the economy as Keynesians...

whereas recent Democratic Presidents have embraced Austrian/Chicago School policies.

It's a sad fact.