a sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery. Says Ben
Congress, the states and localities deal in big units called entitlements. From housing to jet fighters, the average long term deal size is over a hundred billion. We have a Senate with many members who deal in millions at a time, in the short term. Any decision on the long term is unstable, it is a swap of huge units.
So we have this contradiction. The private sector won't participate in a kick the can strategy if huge trades are soon coming. That leaves two choices, QE3 with monetized debt or make the long term deal and risk instability.
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