Uniqueness

Economy Up

Manufacturing

US manufacturing on the riseMutikani 7/1 (LUCIA MUTIKANI, Tue Jul 1, 2014 “U.S. factory, auto sales data bolster growth outlook” accessed 7/5/14 at http://www.reuters.com/article/2014/07/01/us-usa-economy-idUSKBN0F64EZ20140701)

U.S. manufacturing activity rose at a steady clip in June and automobile sales raced to their highest level in almost eight years, pointing to momentum in the economy after a turbulent start to the year. The data on Tuesday painted an upbeat picture for the second quarter and underscored the strength in the economy heading into the last half of the year. "We come away from these reports with a higher level of conviction that the U.S. economic recovery is strengthening," said Millan Mulraine, deputy chief economist at TD Securities in New York. The Institute for Supply Management said its index of national factory activity for June was at 55.3, little changed from May's 55.4 reading. A figure above 50 indicates expansion. Notably, a gauge of new orders hit a six-month high in a good omen for business capital spending, which appeared to struggle during the first half of the year. From transportation equipment to machinery and computer and electronic products, manufacturers were quite bullish in their assessment of business conditions. "It's all very constructive. The second half of the year should look much, much better for capex (capital expenditure) investment," said Jacob Oubina, senior U.S economist at RBC Capital Markets in New York. In a

separate report Autodata Corp said auto sales increased 1.2 percent to a seasonally adjusted annual pace of 16.98 million units

last month, the highest rate since July 2006. The increase came even though there were two fewer selling days than a year ago. Most major automakers beat expectations, and sales at the top-selling manufacturer in the U.S. market, General Motors Co (GM.N), rose 1 percent despite its ongoing safety crisis. Analysts had expected GM's sales to fall 6 percent. The reports reinforced views the economy has rebounded after a weather-induced slump and helped push up U.S. stock prices , with the S&P 500 .SPX closing at a record high. Prices for U.S. Treasury debt fell, while the dollar was little changed against a basket of currencies.

Job growth

The US economy is growing – unemployment is at pre-recession levelsSharf 7/3, Sharf, Samantha, Staff Writer for forbes, covers markets, millennials and money.. "Jobs Report: U.S. Economy Added 288K Jobs In June, Unemployment Dropped To 6.1%." Forbes. Forbes Magazine, 03 July 2014. http://www.forbes.com/sites/samanthasharf/2014/07/03/jobs-report-u-s-economy-added-288k-jobs-in-june-unemployment-dropped-to-6-1/ Web. 04 July 2014. CSThe Bureau of Labor Statistics released a surprisingly strong jobs report Thursday morning. Employers added 288,000 jobs in June, significantly more than the 215,000 economists were anticipating. The unemployment rate, which is drawn from a different survey of households, dropped from 6.3% to 6.1% the lowest rate since September

2008. Immediately following the news the S&P 500, The Dow Jones Industrial Average and Nasdaq Composite were in the green,

continuing positive trends seen leading up to the pre-bell release. The Dow crossed 17,000 for the first time ever

seconds after the opening bell before settling around 17,050. The May payroll number was revised up from plus 217,000 jobs to plus 224,000. April’s employment number was also revised from 282,000 jobs added to 304,000. Total employment gains those months were therefore 29,000 higher than BLS — a division of the Department of

Labor — previously reported. Job growth averaged 272,000 for the last three months. “This was a strong report any way you slice it,” wrote RBS U.S. Economist Omair Sharif in a note on the news. Sharif pointed out that the unemployment rate is “where the Fed thought we would be at year-end, and it’s only June.” In a call following the results Mike Schenk, vice president of economics and statistics at the Credit Union National Association, said the strong headline numbers show a “bounce back effect.” Adding, “The first quarter numbers were not all that encouraging, especially in terms of the economic growth numbers. People seemed to be sitting on the sideline in terms of purchasing behavior. Clearly the consumer is back in the market place.” Schenk also noted that CUNA’s monthly survey of credit unions showed the organizations loan portfolios increasing by

1.2% last month, the strongest growth since August 2005. “Consumers are engaged. They are not only buying more, but buying big ticket items so a lot of that pent up demand is being expressed.” The labor force participation rate, however, was stagnant at 62.8% for the third month in a row. At 59% the employment-population ratio was little changed from the prior month. “Perhaps the only disappointment might be that average hourly earnings growth remains subdued,” wrote RBS’ Sharif. Hourly earnings gained just 0.2% in June, bringing the year-over-year rate to 2.0%. The workweek was steady at 34.5 hours. Amidst a data set where most points were positive — and notably moving in the same direction — Tara Sinclair, economics professor at George Washington University and economist at job search site Indeed.com, said she sees the stagnate wage growth and participation rate as closely related. “If employers see this shadow labor force out there, there is no pressure to raise wages.” The sector with the most new jobs was business services with 67,000 jobs added, 14,000 more jobs than the industry’s 12 month average. Retail trade, food services/drinking places and healthcare added 40,000 jobs, 33,000 jobs and 21,000 jobs respectively. Employment was also up in the transportation, financial, manufacturing and wholesale trade industries. Employment was little changed in mining, construction, information and government. Sinclair said that the diversity of jobs added is a signal of a more robust recovery than has been seen in recent months and even years. The diversity coincided with the wide range of job postings Indeed found across the web in May. Similar patterns in June posting may pay off in July as well. Joseph Lake, U.S. analyst for The Economist Intelligence Unit, wrote in a note that before this year many economy watchers were calling this a “jobless recovery.” Year-to-date, however, Lake wrote, “the riddle has been reversed; companies are creating jobs at a rapid rate, while the economy is tanking.” Last week the Bureau of Economic Analysis released its third estimate of real gross domestic product for the first quarter 2014. The release showed output in the U.S. declining at an annual rate of 2.9%.

US economic growth is doing better than expected, unexpected job growthCoy, 7/2 (Peter, July 2, 2014. Peter is the economics editor for Bloomberg Businessweek. He also holds the position of senior writer.He came to BusinessWeek from the Associated Press in New York, where he had served as a business news writer since 1985. Before that, Coy worked as a correspondent in the AP Rochester bureau. He began his career at the AP in 1980 as an editor in the Albany bureau. Prior to that, Coy was a reporter for the Waterbury (Conn.) Republican. He has appeared on numerous TV programs, including shows on CNN, Fox News Channel, and MSNBC, among others. Coy holds a BA in history from Cornell University. “Jobs Growth Adds More Sunshine to U.S. Economic Performance”, Business Week. Accessed July 5, 2014 at http://www.businessweek.com/articles/2014-07-02/jobs-growth-adds-more-sunshine-to-u-dot-s-dot-economic-performance)

Nearly seven years after the last recession began, the U.S. economy has been ticking along at a good clip lately. Private employers added 281,000 jobs in June, according to a report on Wednesday from the ADP Research Institute (ADP), a number that exceeds the most optimistic forecast of economists surveyed by Bloomberg. The official numbers for May from the Bureau of Labor Statistics come out on Thursday, and the strong ADP number, while not perfectly reliable as a predictor, increases the likelihood that the Bloomberg survey median (215,000 growth in private payrolls and zero growth in government payrolls) is too low. This chart shows U.S. payrolls—including government employment not included in the ADP survey—through May. That was the first month that employment in the U.S. climbed above where it was when the recession began in December 2007.

The June number coming out on Thursday will extend the chart line upward and to the right. “The labor market appears to be firing on all cylinders and is finally self-sustaining,” wrote two PNC Financial Services economists, Stuart Hoffman and Gus Faucher, in a note on Wednesday. No one is arguing that all is well. Long-term unemployment remains high and lots of the new jobs pay below-average wages. Productivity growth is weak, and that’s actually one reason for the strong job growth—companies need to hire more people to get the job done. And consumer spending adjusted for inflation fell in both April and May. “The economy is not growing quickly enough to use up the excess capacity that has accumulated since the crises began several years ago,” Steven Ricchiuto, chief economist of Mizuho Securities USA, wrote in a note. Still, the economy is certainly looking stronger than one would guess from the government’s June 25 report that gross domestic product fell at an annual rate of 2.9 percent in the first three months of 2014. Economists are now estimating that the U.S. economy grew at a 3 percent annual rate in the just-finished second quarter—a huge turnaround.

Employment is ticking up along with consumer spending proving economic growth(NELSON D. SCHWARTZ on JULY 3, 2014 Schwartz is a reporter for the New York Times “Hiring Is Strong and Jobless Rate Declines to 6.1%” New York Times. Accessed 7/5/14 at http://www.nytimes.com/2014/07/04/business/jobs-data-for-june-released-by-labor-department.html?_r=0)

Employers added 288,000 jobs in June, the Labor Department said Thursday, the fifth month in a row that hiring has topped the 200,000 mark. The unemployment rate dipped to 6.1 percent last month, the best reading since September 2008, when the collapse of Lehman Brothers turned what had been a mild recession into an economic

rout. Since then, many segments of the economy have rebounded — including corporate profits, Wall Street and the housing market — even as payrolls inched higher at a grindingly slow rate. Now, these broader economic gains are prompting businesses to actually hire significantly more workers in response to growing demand, rather than taking half steps, like adding hours to stretch existing work forces . The prospect of stronger economic growth, with healthier consumer spending as more Americans find work, helped to lift the stock market to new highs. On Thursday, the Dow Jones industrial average closed above 17,000 for the first time, while the Standard

& Poor’s 500-stock index recorded a new high and the tech-heavy Nasdaq hit its highest level since the go-go days of 2000. Despite the broad gains, the economy is still a long way from its peak before the housing bubble burst and the recession began at the end of 2007. The broadest measure of unemployment, which includes people who are working part time because full-time positions are not available, stands at 12.1 percent. And the proportion of Americans in the labor force has been stuck for three straight months at 62.8 percent, a 36-year low, and is down sharply from 66 percent in 2008. But the recent healthy level of hiring looks more sustainable than it has in years. Factoring in June’s increase and upward revisions for estimated hiring in April and May, employers added an average of 231,000 workers a month in the first half of 2014, the best six-month run since the spring of 2006. “We’re clicking on all cylinders in terms of job growth,” said Dean Maki, chief United States economist at Barclays. Just as significant as the headline figures, Mr. Maki said, is that

June’s hiring was broad-based, as industries as varied as health care, manufacturing, financial services and retailing all added workers. “Every major sector showed job growth in June, including the private service sector, where the bulk of jobs in the U.S. are created,” Mr. Maki said. In an important turnabout, there were encouraging gains not just in well-paid white-collar professions, or in low-wage sectors like retail and restaurants, but also in the vast middle tier of jobs that enable workers to gain a foothold in the middle class . For example, manufacturers hired 16,000 workers, while transportation companies added 17,000 employees and the long-dormant public sector saw an addition of 26,000 positions. “It’s definitely a strong report,” said Guy Berger, United States economist at RBS. “There really aren’t that many clouds.” Despite the stock market jump, the more robust rate of hiring is making some traders nervous that the Federal Reserve will be forced to start raising short-term interest rates earlier than had been expected to ward off any risk of higher inflation.

The drop in the unemployment rate to near 6 percent comes months earlier than the Fed had expected ; the central bank had predicted it would take until the end of the year for the jobless rate to reach that level. While the Fed’s program of buying bonds to stimulate the economy is on track to end in October, most economists have been predicting the first increases in short-term rates would not come until the summer or early fall of 2015. Now, some experts like Paul Ashworth of Capital Economics say the Fed could move as soon as March. Despite such concerns, there was little hint of accelerating wage inflation in the data in June ,

a crucial trend that the Fed watches to gauge the broader danger of higher inflation. Wages are up just 2 percent from the period a year earlier, in line with the inflation rate today as well as the overall rate of salary increases over the last four years. Some of the recent job gains represent a catch-up for employers that put off hiring during a bumpy 2013. The initial weakness in the first quarter of 2014 delayed it further, as the economy shrank 2.9 percent during a bitter winter and a downward swing for inventories.

Growth

The US economy is growing, fueling global growthBill Gross 3/12/2014, Pimco raises US economic outlook, says China growth to slow, Reuters, http://www.cnbc.com/id/101488135#.Pimco, home to the world's largest bond fund and run by co-founder Bill Gross, upgraded its assessment on U.S. economic growth on Wednesday, saying it now expects expansion to run between 2.5 percent and 3 percent in 2014. In its global economic outlook, Pimco said its improved baseline expectation for real growth in the United States stems from "trends toward growth and spending in the consumer, corporate and public sectors .'' In December, Pacific Investment Management Co, better known as Pimco, had said the firm expected U.S. economic growth to run between 2.25 and 2.75 percent in 2014. (Read more: Pimco fund cuts mortgage, US government holdings) "The global economy will likely experience steady, broad-based growth in 2014, thanks in no small part to the extraordinary expansion in central bank balance sheets in 2013,'' portfolio manager Saumil Parikh said in the report.

No Spending

Cuts now

Congress is committed to cutting spending- Afghanistan proves BY ERNESTO LONDOÑO AND KAREN DEYOUNG 2014 <Washington post, Congress cuts U.S. military and development aid for Afghanistan, http://www.washingtonpost.com/world/national-security/congress-cuts-us-military-and-development-aid-for-afghanistan/2014/01/24/3d4cb818-8531-11e3-bbe5-6a2a3141e3a9_story.html> With no perceptible opposition from the Obama administration, Congress has quietly downscaled Washington’s ambitions for the final year of the Afghan war,

substantially curtailing development aid and military assistance plans ahead of the U.S. troop pullout. As

congressional appropriators put the final touches on a huge spending bill in recent weeks, they slashed Afghanistan development aid by half and barred U.S. defense officials from embarking on major new infrastructure projects. After making a bid last year for $2.6 billion worth of “critical” capabilities such as mobile strike vehicles for Afghan security forces, the Pentagon agreed it could do with just 40 percent of what it had sought. The Obama administration had long hoped to bring the Afghan war to a dignified conclusion this year and viewed the president’s State of the Union speech Tuesday as an opportunity to describe the end of America’s longest war as a foreign policy success. But Washington’s appetite to remain engaged in Afghanistan appears to be eroding precipitously, in large part because of how poisonous its relationship with the country’s president has become. The prevailing sentiment in Washington toward President Hamid Karzai, who has thus far refused to sign a security agreement that would keep U.S. troops and funding in Afghanistan beyond 2014, was even codified in the Afghan portion of the spending bill, which was drawn up without significant public debate. “The bill prohibits the obligation or expenditure by the United States government, of funds appropriated in this or any other act, for the direct personal benefit of the President of Afghanistan ,” appropriators wrote, an unprecedented move that President Obama signed into law last week. U.S. officials said the cuts and restrictions might appear starker than they actually are because agency heads will retain significant flexibility to use unspent funds from previous years or draw from other sources. But many see the reductions as the unmistakable end of an era of wartime largesse. “I think this reflects a congressional mood and will have an impact on the ultimate levels of support,” James F. Dobbins, the U.S. special representative for Afghanistan and Pakistan, said in an interview. Referring to Karzai’s position on a security agreement, Dobbins said, “This is an example of the price Afghanistan is paying for delay.”

Midterms

New spending and appropriations are effectively being put on hold until after the new budgetary year and midtermsCollender in 2014(Stan, “The Craziness of this years federal spending,” Forbes, 6/21, http://www.forbes.com/sites/stancollender/2014/06/21/the-craziness-of-this-years-federal-spending/)Congressional Republicans are now starting to make noise about shutting down the government over the carbon emissions standards announced several weeks ago by the Environmental Protection Administration. House Majority Leader Eric Cantor’s (R-VA) primary loss to a tea party candidate has given additional impetus to

this plan’s proponents. With most earmarks now a thing of the past, getting votes for an appropriation bill is much tougher than it used to be. Appropriators just don’t have the same power they used to have to twist arms and convince members to support them. Appropriators always say they want the coming year’s appropriations enacted by October 1 so saying it this year shouldn’t be taken as big a sign that

anything has really changed. According to Congress.gov, as of last Friday the House had only passed 5 of the 12 fiscal 2015 appropriations and the Senate had adopted none. That means that there haven’t been conferences between the two houses on any of the spending bills let alone re-votes in the House and Senate on the compromises that are eventually reached. Some members these days consider compromise to be a political sin and the equivalent of

collaborating with the enemy. In this environment, even small differences between the House and Senate on some bills may be insurmountable by October 1. With elections analysts saying Republicans have a chance to take control of the Senate in November,

the GOP appears to be less interested in completing appropriations before the next Congress begins. Instead, the increasingly discussed congressional Republican strategy is to put a continuing resolution in place until early next year so the hoped-for GOP majority will make the final spending decisions . The GOP strategy actually is for two continuing resolutions. The first would last from October 1 to around mid-December. Then, depending on the election results, the second would be in place from mid-December to around mid-March. The fact that this once again would make it difficult for federal agencies and departments to do their work through the first six months of the year doesn’t seem to be a consideration. Neither does the difficulty in implementing spending cuts or increases or major policy changes when a final appropriation isn’t enacted until the fiscal year is half over and the guidance you need from the Office of Management and Budget comes weeks later. And the fact that all this is happening not because of policy differences but because of politics shows how absolutely crazy this situation has become.

No new spending –congress is focused on midterm electionsMiller in 2014(Zeke, Staff Writer, “Obama’s Budget filed with election year political messages,” Time, March 4, http://time.com/12337/obama-budget-filled-with-political-messaging-2014/)If budgets are political documents, President Barack Obama’s latest offering is something akin to a partisan opus. That doesn’t mean it’s heading anywhere. Democrats in the Senate will not proceed with a budget resolution this year , and the House, if it acts at all, will almost certainly hew to a GOP vision . Indeed, lawmakers have already approved spending figures for the fiscal year starting Oct. 1. Instead with Washington squarely focused on this fall’s midterm elections, Obama’s $3.9 trillion budget represents a laundry-list of policy proposals designed to help Democrats hold the Senate and pick up seats in the House. Obama essentially conceded the point last month, when the White House announced he is dropping calls for an unpopular, but cost-saving measure to change the way inflation is calculated for the purposes of entitlement programs like Social Security. That compromise was intended to be a good-faith offer to Republicans as part of a grand bargain, but gridlock and declining deficits have placed the national debt on the backburner. The new budget, by contrast, is chock full of wedge issues designed to exploit the divide between Democrats and Republicans , and it has been released under Obama’s populist State of the Union theme “Opportunity for all,” which the president hopes to make a rallying cry for Democrats this year. It includes tax breaks for many low- and middle-income Americans paid for by the closing of loopholes used by the nation’s wealthiest and supported by many Republicans, including the carried interest exemption. It would also institute the so-called “Buffett Rule” by instituting a minimum tax rate of 30 percent on people earning more than $1 million a year, ensuring they pay an effective tax rate above those of middle-class Americans

Spending Down

Budget deficit is down now – May figures proveNawaguna in 2014(Elvina, “U.S. budget deficit shrinks to $130 billion in May,” Reuters, June 11, http://uk.reuters.com/article/2014/06/11/us-usa-economy-budget-idUSKBN0EM23P20140611)The U.S. budget deficit shrank more than six percent from a year earlier to $130 billion in May, according to

data released by the Treasury Department on Wednesday. Analysts polled by Reuters expected a $131 billion deficit last month. The gap was $139 billion in May 2013. May's results brought the year-to-date deficit to $436 billion, compared with $626 billion in the same period last year. Last month's budget results were affected by differences in the calendar. If adjusted for timing-related transactions, the U.S. would have ended the month of May with a deficit of $87 billion, down from last year's adjusted $106 billion deficit. Receipts totaled $200 billion, up 1 percent from a year ago, the monthly budget statement said, bringing the year-to-date total to $1.93 trillion. Outlays were at $330 billion, down 2 percent from last year, for a year-to-date total of $2.37 trillion. A Treasury Department official said that it is typical for the government to run into the red in May because there are no significant tax due dates that month. This was the 59th deficit in the last 60 months of May.

Deficits are decreasing due to spending cuts and a budget cease-fire that’s in place due to concerns over midtermsCrutsinger in 2014(Martin, “US Records $130 Billion budget deficit in may,” AP News, June 11, http://bigstory.ap.org/article/us-records-130-billion-budget-deficit-may)The U.S. government's monthly budget returned to deficit in May after a big April surplus. But the overall imbalance so far is far smaller than it was the same period last year, putting the country on track for the lowest annual deficit in six years. The Treasury Department said Wednesday that the May deficit totaled $130 billion after a surplus of $106.9 billion in April, a month when the government usually runs surpluses because of a flood of tax revenues. For the first eight months of this budget year, the deficit totals $436.4 billion, down 30 percent from $626.3 billion for the same period in 2013. It was the smallest imbalance since 2008. The Congressional Budget Office is forecasting a deficit of $492 billion for the full budget year ending Sept. 30. The government has run a deficit in May, a month when there are no major tax payments, for 59 out of the past 60 years. This year's May deficit was slightly lower than the $138.7 billion deficit in May 2013. The improvement this year reflects a stronger economy and labor market, which translates into more income and higher tax revenues. The government has also trimmed spending to gain control of soaring deficits in recent years. Revenues this year totaled $1.93 trillion through May, up 7.5 percent from the same period a year ago. Government spending over this period totaled $2.37 trillion, a drop of 2.3 percent from a year ago. In 2008, the government recorded a deficit of $458.6 billion, which was the record high at the time. But that record was soon eclipsed as the government ran annual deficits surpassing $1 trillion for the next four years. Those deficits reflected a deep recession, which reduced tax revenue, and higher government spending to stabilize the financial system and pay benefits to people who had lost jobs. After peaking at $1.4 trillion in 2009, the deficit has been falling. It dropped to $680.2 billion last year. Over the next decade, CBO is projecting that deficits will total $7.6 trillion, $286 billion less than it projected in February. The biggest factor in the improvement is $165 billion less in projected spending on health insurance subsidies for policies sold through exchanges created by the Affordable Care Act. Those policies are proving less costly than CBO originally thought, mainly because of tighter management of treatment options. The CBO is forecasting that the deficit will fall to $469 billion in 2015 before rising again and topping $1 trillion annually starting in 2023. The increases will be driven by spending on the government's major benefit programs, including Social Security and Medicare, as baby boomers retire. Republicans have accused Obama of failing to propose significant cost-cutting measures to reduce soaring entitlement costs. Democrats counter that Republicans would rather impose sharp cuts on needed government programs than impose higher taxes on the wealthy. Neither side is expected to make major concessions in this congressional election year. But the budget wars of the past three years have subsided at least for a brief time . An agreement was reached in December on the broad outlines for spending over the next two years. The agreement will allow Washington to avoid the gridlock that culminated in October's 16-day partial shutdown of the government. The budget cease-fire also includes legislation that will suspend the government's borrowing limit through March 15 of next year. That puts off another battle over raising the debt ceiling until a new Congress takes office in January.

Current budget deficits are at their lowest since 2008Kats in 2014(Ian, “U.S. Budget Deficit Narrows as Economy, Jobs Boost Revenue,” Bloomberg, Jun 11, http://www.bloomberg.com/news/2014-06-11/budget-deficit-in-u-s-narrows-as-economy-jobs-bolster-revenue.html)The U.S. posted a $130 billion budget deficit in May and the smallest shortfall for the first eight months of a fiscal year since 2008, as a stronger economy and rising employment bolster revenue. The deficit last month was about $9 billion less than the $139 billion shortfall in May 2013, the Treasury Department said today in Washington. The

median estimate in a Bloomberg survey of 20 economists called for a $130.5 billion gap. “Our fiscal position is rapidly normalizing as the economy recovers,” said Paul Edelstein, director of U.S. financial economics at IHS Global Insight Inc. in

Lexington, Massachusetts. For the fiscal year, which began Oct. 1, the government is running a budget deficit 30 percent smaller than it was a year earlier. Revenues for that period are 7 percent higher than a year earlier and outlays are 2 percent lower. In the fiscal year through May, the government posted a $436.4 billion deficit compared with a $626.3 billion shortfall in the same period a year earlier, the figures showed. Today’s Treasury report showed revenue increased to $200 billion last month from $197 billion in May 2013. Spending totaled $330 billion, a 2 percent decline from the same month a year earlier, the figures showed.

Government spending is down now and will continue to decline as a percentage of GDPPeter Coy 10/17/2013, The Tea Party's Pyrrhic Victory, Bloomberg Business, http://www.businessweek.com/articles/2013-10-17/tea-partys-victory-against-government-spending-comes-at-high-priceDiscretionary spending (i.e., spending excluding transfer payments and interest) will fall even more in the decades ahead if the laws that the Tea Party helped get on the books stay there . The nonpartisan Congressional Budget Office projects that, under current law, by 2038 total spending on everything other than the major health-care programs, Social Security, and interest will decline to the smallest share of the economy

since the 1930s . Ronald Reagan had nothing on today’s Tea Party when it comes to shrinking the parts of government that require annual appropriations by Congress. “That part of the budget has been cut very significantly, I think more than anyone would have expected or would have thought even was possible before the 2010 elections,” says Ed Lorenzen, executive director of the Moment of Truth Project, which was launched by would-be budget cutters Alan Simpson and Erskine Bowles. Tea Partiers like to see themselves as underdogs in a war against profligate spending. But the truth is they’ve already won .

Link

Generic

Gridlock LinkRepublican are becoming more and more anti-environment, voted against increased funding for national ocean policyLange ’14 (Timothy, political scientist and writer on congressional affairs, House Republicans voted 109 times against environmental

protection in 2013, Daily KOS, http://www.dailykos.com/story/2014/01/08/1268055/-Henry-Waxman-report-House-Republicans-voted-109-times-against-environmental-protection-in-2013#, accessed: 7/11/14 GA) The 112th Congress was labeled two years ago the most anti-environment in the history of the House of Representatives by Democratic Rep. Henry Waxman of California and then-Rep. Ed Markey of Massachusetts. But a new report from

Waxman's office has found that the 113th Congress may turn out to be worse if its second half matches its first. In 2013, the Republican-led House voted for the anti-environment position 109 times. House Republicans voted to block actions to improve air quality and cut carbon pollution; to expedite oil and gas drilling off America’s coasts and on onshore federal lands; to slash funding for renewable energy and energy efficiency programs; to block federal efforts to improve water quality; and to allow more logging and mining on federal lands with limited environmental review. Unfortunately, on at least one issue on that list, oil and gas drilling, the White House has—to state it generously—been far from exemplary. But unlike the Obama administration, House Republicans have zero to boast about on the eco-protection side of their ledger. Their attack on the environment has been broad-based. According to the Waxman report, House Republicans voted: • 51 times in favor of the interests of the oil and gas industry including fast-tracking pipeline construction and putting up obstacles to developing cleaner alternatives to oil. • 37 times to weaken the Clean Water Act and to block funding to implement the National Ocean Policy. • 27 times to cut spending on clean energy and energy efficiency. • 20 times to weaken the Clean Air Act. • 20 times against efforts to curb carbon pollution. With an extremist majority of the House Republican caucus firmly in the denier camp on climate change, and determined to undercut any environmental protections that don't have a direct impact in their own back yard, the count of obstructive votes is hardly a surprise. Also no surprise is that too few House Democrats have shown the environment to be a high priority of theirs. For instance, only 33 Democrats are members of the Safe Climate Caucus led by Waxman. Members have pledged to speak out every day on the need to deal with climate change: What unites us is our understanding that climate change is the moral issue of our time. We believe we have an obligation to use our voices to raise awareness of the dangers we are creating for our children and grandchildren if we do not act now. There are 167 Democrats missing from that caucus. If they really want to distinguish themselves from the know-nothing right-wingers highlighted in Waxman's report, they should make it a point to sign up.

Development

Fisheries

The current management structure costs 600 million dollars annually – the affirmative overhaul would logically be even more expensive. Leal et al in 2006(Donald R., senior fellow and director of research at PERC, Michael De Alessi, director of natural resource policy for the Reason Public Policy Institute in Los Angeles, Pamela Baker, director of natural resource policy for the Reason Public Policy Institute in Los Angeles, “Governing U.S. Fisheries with IFQ’s,” Property and Environmental Research Center, http://perc.org/sites/default/files/ifq_governing.pdf)United States fisheries off the East and West coasts, the Gulf of Mexico, and Alaska are managed by a complex structure that involves several governing bodies and spends considerable resources—some $600 million in direct federal expenditures annually. Sustainable fisheries and a healthy marine environment are two important goals of fishery

governance. Unfortunately, the governing structure often operates under rules that interfere with a fisherman’s ability to earn a living. The result is conflict rather than cooperation and, ultimately, failure to achieve these goals. The governing structure includes the National Marine Fisheries Service (NMFS); eight regional councils, which are quasi-government bodies composed of representatives from commercial and recreational fishing sectors as well as federal, state, and coastal interests; fish and wildlife agencies of coastal states; and the U.S. Coast Guard, which shares responsibility with NMFS and the state agencies for monitoring and enforcing rules governing fishing. Two recent commission reports on U.S. ocean policy have proposed additional elements to improve fishery governance.1 While neither agreeing nor disagreeing with these proposals, the authors of this essay believe that it is essential to end economic hardship for fishermen as well as improve the protection of the resources. Individual fishing quotas (IFQs) are one important means.

Oil/Nat Gas

Oil drilling is one of the riskiest, most expensive ventures—especially because there is a chance the oil hole could be dryFlower 9 (Merlin, “Oil Drilling - an Expensive Business”, http://www.oil-price.net/en/articles/oil-drilling-expensive-business.php)Among all the undertakings in the world, this could rank as one of the riskiest ventures-oil drilling. Here's a sampler for what we are talking about from Mukluk Island: In 1983, twelve companies spent nearly $2 billion drilling for oil in the Beaufort Sea, North of Alaska. The exploration was based on oil stains found. But the well turned out to be a dry hole with no oil. Little wonder then that oil drilling is risky and expensive. According to Arizona Geological Survey, Oil drilling in Arizona costs between $400,000 to $1,000,000, depending on the depth of the hole and its location. A rig capable of drilling most exploratory holes typically costs $8,000-15,000 per day. Well then, why is drilling for oil so expensive? It is because of some of the costs involved: Payments for the contractors, welders, engineers, supervisors, mud loggers, geologists, scientists Personnel for drilling, logging, cementing, casing and other logistics Clearing all the dues with the landowner (territorial payments if offshore), payment of taxes, fee for attorney, permit to drill the well Costs for maintenance: There will be three shifts with personnel employed 24 hours a day, so amenities for the crew like motels, restaurants, transport, water and food. Onto the process of drilling, how is the well drilled? Well, the drilling rig bores a hole into the earth through which steel pipes are inserted. Pipes or casings like cement would then be put in between for strength as well as for separating different pressure zones- if they exist. The well is then drilled further, and more casings are added. At times, 2-3 layers of casings would be built depending on the geological composition of the zone. The rotator table then passes the drill string onto the hole. The drill string rotating by 'top drive' or 'power swivel' mechanism extends the drill bit. This extension is done with the help of the derrick (the structure holding the drill string). The drill bit then cuts the rock into pieces. Drilling fluid, also called mud-mixture of fluids, chemicals, abrasives and solids - is then pumped down the drill string. This fluid clears the cut rock bits onto the surface. Compressed air is substituted for the fluid, at times. In turbo-drilling, a turbine is placed in the drill string. Mud flows through this turbine causing the drill bit to rotate. We saw earlier that oil drilling is expensive, so are the drilling contractors because: Discovery of new oil wells is very rare Low yields from old/mature wells High risks involved in the exploration process Fluctuating price of oil and gas Increased demand for oil as well as for drilling contractors The drilling works are done by specialized drilling companies like Transocean, Diamond Offshore Drilling, Inc and Noble. In general, these drilling companies rent or lease their drilling rigs to oil and gas companies like ExxonMobil, Royal Dutch, BP and Shell. In return, they earn revenue through day rates. Average well cost in the UK continental shelf in 1998-Northern North Sea £ 8-12 million, West of Shetland £ 5 - 15 million, Southern North Sea £ 7 - 12 million, Irish Sea £ 2 - 3 million. To get a more clear idea of the costs involved let's take a look at some of the drilling companies: Transocean: This is the world's second largest offshore drilling contractor. Recently the company penned a contract for a well in West Africa for $630,000 a day and its Deepwater Pathfinder is the most expensive drill ship in the world. It also signed a three year contract from a consortium of contractors at $460,000 a day in the Q3 of 2009. Most of Transocean's drilling is occurring in the Far East, the U.K., Middle East, the U.S., as well as parts of Africa and Asia. Average day rate of Transocean has moved from $211,900 in 2007 to $283,800 in the third quarter of 2009. Diamond offshore drilling, Inc: Operating as offshore contract drilling, the company concentrates more on the Gulf of Mexico. It has about 45 rigs, 30 semi-submersibles (11 high- specification capable of working in water depths of more than 4000 ft, 19 intermediate rigs-work at depths less than 4,000 ft., 15 jack-ups- operates at water depths of up to 400 feet). The day rate was $386,000 in the fourth quarter of 2008 which increased to $360,000 per day in the first quarter of 2009. In the Q2 of 2009, the day rate was $381,000 for high specification floaters, $286,000 for intermediate semis and $146,000 for jack-ups. Noble: It is the third largest offshore oil exploration and production company with presence in India, Mexico, Brazil, Middle East and West Africa. It has 63 drilling units (13 semi submersibles, 44 jack-ups and three submersibles). The day rate was $83,417 in 2006 and $164,000 in 2009 (by comparison average day-rates for Noble's international fleet was $60,922 in 2005 and $83,417 in 2006). Ensco International: It has 45 jack-ups, one semi-submersible, one barge rig and three ultra deep water semi submersible rigs. Apart from the US, the company has presence in Europe, Asia Pacific and Africa and the Middle East. The day rate of the company rose to $155,000 in 2008, a dramatic increase from the rates of $114,762 in 2006 and $139,882 in 2007. Seadrill: This Norway based company received contracts worth $4.1 billion for three deepwater rigs from Brazilian Petrobras - day rates was more than $600,000. Though the oil prices have fallen in recent times, the companies still earn profit, in fact, their profit has surged- as seen from the above discussion-- as most of their contract run through 2010.

Offshore Wind

Offshore wind cost a lot of money to developPlatts 13, Platts, Jim, Lecturer in Manufacturing Engineering Tripos at University of Cambridge. "Offshore Wind Is Too Expensive, and That's Unlikely to Change." The Conversation. The Conversation Trust, 5 Dec. 2013. http://theconversation.com/offshore-wind-is-too-expensive-and-thats-unlikely-to-change-20987 Web. 11 July 2014. CSThe government has announced that the final prices paid to generators of solar, onshore and offshore wind would change to favour

offshore wind at the expense of the others. While the difference is fairly slight – a fiver off here, a fiver added there – it reveals a favour that

ignores the industry’s struggles to make offshore wind development economically viable . At the Dong Energy windfarm at Walney off the Cumbrian coast the water is 30m deep. A huge steel cylinder is driven 30m into the seabed – it weighs 600 tonnes, and comes from China. A connector sleeve that links the cylinder to the tower that is inserted into it weighs 300 tonnes, and also comes from China. These are very expensive and cost a great deal to put in place. Then there is the matter of bringing the electricity ashore. All in all, it’s expensive and energy intensive. Challenging connections Germany has four offshore wind farms connected to the grid, with each connected by cables of different voltages and substations of different designs – essentially what happened to be available at the time each system was ordered. More standardisation is needed to cut costs, but in truth the complexities of moving material out to sea, setting it up, and connecting high voltage equipment underwater, over 100 miles, will require many leaps in technology before offshore wind farms are robust and economical. When asked what the wind power sector might look like ten years hence, Jonathan Cole, offshore managing director of Spanish firm Iberdrola said “unless offshore wind is 40% cheaper in a decade it won’t matter what the sector looks like, because offshore won’t be part of it.” Little England The UK holds 3.5% of the world’s wind energy capacity. About a third is offshore, but even this small amount accounts for more than half of all offshore wind installations on the planet. This is not a good place to be. In the 1980s I created the designs, the manufacturing processes, the team and the company that made all the wind turbine blades in the UK. My old team is now the global blade technology development centre for Vestas on the Isle of Wight. I have many, many years experience in technology development of all sorts. But with the exception of a few groups of engineers such as my old team, the UK seems to have no understanding of what developing wind technology involves. It is barely part of this 30-year-old industry that employs over 150,000 people in Europe alone, yet prides itself on having more than 50% of this tiny offshore non-market that the big boys in the real wind energy industry such as GE ignore, as it will never be good business. But the UK is so illiterate in these strategic technical matters, with an unruly market with unclear and changing policies, full of protesters ignorant of not only how the technology works, but what is required to sustain it as an economically viable industry. Offshore wind is at best an area of research and development, not a real market . Even in its wildest dreams,

offshore is a niche market, fraught with technical difficulty and seriously expensive. Instead the industry’s efforts are put to developing larger rotors and taller towers for its workhorse machines to generate more electricity at lower costs in southern Germany, for example, where the market is. It’s unlikely whether such developments, even with the best forward planning and standardisation, can ever make a good economic case for offshore wind over anything else, despite what the government hopes to achieve with its paltry financial incentives.

Offshore wind is ridiculously expensive – both to develop and purchaseGoreham 13, Goreham, Steve, Executive Director of the Climate Science Coalition of America and author of the new book The Mad, Mad, Mad World of Climatism: Mankind and Climate Change Mania. "Offshore Wind: The Enormously Expensive Energy Alternative."Washington Times Communities. The Washington Times, 7 Jan. 2013. http://communities.washingtontimes.com/neighborhood/climatism-watching-climate-science/2013/jun/7/offshore-wind-enormously-expensive-energy-alternat/#ixzz37C9iba1u Web. 11 July 2014. CS Unfortunately, offshore wind is enormously expensive. The US Department of Energy (DOE) estimates the levelized cost of wind-generated electricity at more than double the cost of coal-fired electricity and more than three times the cost of power from natural gas. For example, the proposed Cape Wind project off the coast of southeast Massachusetts will initially deliver electricity at 18.7 cents per kilowatt-hour with a built-in increase of 3.5 percent per year over a fifteen-year contract. This is more than triple the wholesale cost of electricity in New England. Offshore wind is only possible because of generous subsidies, tax breaks, and mandates from government. Today, 38 states offer property tax incentives, 28

states offer sales tax incentives, and 24 states offer tax credits for renewable energy sources. Twenty-nine states have Renewable Portfolio Standards laws requiring utilities to buy an increasing share of electricity from renewable sources, including all ten states in the Offshore Wind Energy Consortium. At the start of the year, the US government extended the Wind Energy Production Tax Credit (PTC), providing 2.2 cents per kilowatt-hour for electricity generated from wind. The PTC will cost taxpayers $12 billion this year. Look for the DOE to offer loan guarantees to offshore wind developers. Altogether,

government incentives pay 30 to 50 percent of the cost of a wind installation. The consumer pays twice for offshore wind. First, consumer taxes fund wind energy subsidies and tax breaks. Second, states like Massachusetts force utilities to buy high-cost offshore wind electricity, which then increase electricity rates so the consumer pays again. At the same time, we’re in the midst of a hydrocarbon revolution. Advances in hydraulic fracturing and horizontal drilling will provide more than 100 years of natural gas at current usage rates. With electricity from natural gas at less than one-third the price of offshore wind , why the support for offshore wind from our political leaders? Electricity from your wall outlet is standard voltage and current. No one can tell the difference between electricity from hydrocarbon sources or “green” sources such as wind. Would governors Patrick and O’Malley repurchase their current car at three times the price? Wind energy backers claim that if the government subsidizes wind systems, the cost will come down. But that idea is false. Wind turbines are not new technology. After 25 years of installations, about 185,000 wind turbine towers were operating across the world at the end of 2011. Wind technology is already well down the cost learning curve. In fact, data from the DOE shows that the installed cost of US wind systems has been rising,

not falling. Installed costs have risen 65 percent over the last six years, from $1,300 per kilowatt in 2004 to over $2,100 per kilowatt in 2010.

I/L

Spending hurts econ

Hurts Growth

Deficit spending destabilizes the financial markets and creates long term economic damageEdwards 11, Edwards, Chris, director of tax policy studies at Cato and editor of www.DownsizingGovernment.org. He is a top expert on federal and state tax and budget issues. "The Damaging Rise in Federal Spending and Debt", Cato.org, The Cato Institute, 20 September 2011, http://www.cato.org/publications/congressional-testimony/damaging-rise-federal-spending-debt. Web. 05 July 2014. CSLawmakers are considering extending temporary payroll tax cuts. But the policy is based on faulty Keynesian theories and misplaced confidence in the government's ability to micromanage short-run growth. In textbook Keynesian terms, federal deficits stimulate growth by goosing "aggregate demand," or consumer spending. Since the recession began, we've had a lot of goosing —

deficits were $459 billion in 2008, $1.4 trillion in 2009, $1.3 trillion in 2010, and $1.3 trillion in 2011. Despite that huge supposed stimulus, unemployment remains remarkably high and the recovery has been the slowest since World War II . Yet supporters of extending payroll tax cuts think that adding another $265 billion to the deficit next

year will somehow spur growth. That "stimulus" would be on top of the $1 trillion in deficit spending that is already expected in 2012. Far from helping the economy, all this deficit spending is destabilizing financial markets, scaring businesses away from investing, and imposing crushing debt burdens on young people . For three years, policymakers

have tried to manipulate short-run economic growth, and they have failed. They have put too much trust in macroeconomists, who are frankly lousy at modeling the complex workings of the short-run economy . In early 2008, the

Co ngressional Budget Office projected that economic growth would strengthen in subsequent years, and thus completely missed the deep recession that had already begun . And then there was the infamously bad projection by Obama's macroeconomists that unemployment would peak at 8 percent and then fall steadily if the 2009 stimulus plan was passed. Some of the same Keynesian macroeconomists who got it wrong on the recession and stimulus are now claiming that a temporary payroll tax break would boost growth. But as Stanford University economist John Taylor has argued, the supposed benefits of government stimulus have been "built in" or predetermined by the underlying assumptions of the Keynesian models. Policymakers should ignore the Keynesians and their faulty models, and instead focus on reforms to aid long-run growth, which economists know a lot more about. Cutting the corporate tax rate, for example, is an overdue reform with bipartisan support that would enhance America's long-run productivity and competitiveness. If Congress is intent on cutting payroll taxes, it should do so within the context of long-run fiscal reforms. One idea is to allow workers to steer a portion of their payroll taxes into personal retirement accounts, as Chile and other nations have done. That reform would feel like a tax cut to workers because they would retain ownership of the funds, and it would begin solving the long-term budget crisis that looms over the economy.

Government Spending and Economic growth are inversely related, Europe provesMunkhammar 12 (Johnny, adjunct scholar at the American Enterprise Institute and MP in Sweden, “The End of Stimulus Policy,” American Enterprise Institute, http://www.aei.org/files/2012/06/27/-the-end-of-stimulus-policy_173446935952.pdf)It is clear from the European experience that increased public spending has not generally correlated with higher economic growth. If there is any correlation, it is the opposite. The more countries increased their public expenditure, the lower economic growth tended to be. The countries that experienced the highest growth rates during the past decade have either decreased their public expenditure or increased it only

modestly, while the countries with the lowest growth rates are the ones that increased the size of government the most.

Economy is stagnant but stable, increased gov’t spending pushes economy downwardGoff, /7/15/12 <Emily Goff, Research Associate, Thomas A. Roe Institute for Economic Policy Studies, Cut Government Spending to Help the Economy? Majority Say Yes, 2012, http://blog.heritage.org/2013/06/25/cut-government-spending-to-help-the-economy-majority-say-yes/>MP

Four years after the official end of the recession in June 2009, the economy is growing sluggishly. As The Wall Street Journal reports today, the economy lately has grown at about 2.2 percent annually —one-third

slower than the 3.3 percent average rate in past decades.¶ Government meddling has not helped. Massive federal stimulus helped send federal budget deficits soaring , and the repeated threat of tax hikes—followed by actual tax hikes on businesses, more affluent Americans, and all income earners (remember the payroll tax hike?)—has hindered an economy desperately trying to improve. Whenever government raises taxes, it takes more money out of the private sector, where it can be used more efficiently by businesses, investors, and families.¶ The country’s $16.7 trillion-plus national debt and its upward trajectory are not helping, either. As Heritage

Foundation experts Alison Acosta Fraser and J. D. Foster wrote recently:¶ The U.S. economy is slowly recovering, but President Obama’s massive deficits, soaring debt, and tepid support for reforms to render America’s entitlement programs affordable pose a grave economic threat.¶ Yet Washington keeps ignoring the fact that spending cuts, not tax hikes—and certainly not more spending—is the solution. To tame the national debt, Congress should cut spending and implement programmatic reforms to Medicare, Medicaid, and Social Security so that these programs can work better for Americans today but still be affordable in the future.¶ The Rasmussen poll suggests that Americans think Washington should repurpose those big scissors used for groundbreaking ceremonies and start cutting federal spending. The Obama Administration’s Keynesian economic policies are one costly, royal failure to “jumpstart” the economy. Now Washington should wake up and do what its constituents want: cut spending. It had better hurry, because the clock is ticking.¶

Economic growth depends on the US implementing sound fiscal policyTHE ASSOCIATED PRESS 7/7/2014, International Monetary Fund chief hints at revising growth estimates for global economy, http://www.newsday.com/business/international-monetary-fund-chief-hints-at-revising-growth-estimates-for-global-economy-1.8709451The chief of the International Monetary Fund predicts that the global economy will improve over the next 18 months but says that growth might not be as fast as previously expected. IMF managing director Christine Lagarde says that investment remains weak and that the recovery in the United States hinges on the ability of the Federal Reserve to gradually reduce stimulus measures and on political leaders agreeing on a fiscal plan . Lagarde made the comments Sunday at a

conference in France. The IMF is expected to refresh its economic forecasts this month. In April, it predicted global growth of 3.6 percent this year and 3.9 percent in 2015, up from 3 percent last year. Growth was unexpectedly weak earlier this year but should gain momentum in the second half of 2014 and pick up more in 2015, Lagarde said. Still, she said, the recovery in

advanced countries remains tepid , and developing countries won't grow as fast as had been expected. "Global activity is strengthening but could be weaker than we had expected, as potential growth is lower, and investment remains depressed," she said. In the United States, the U.S. Labor Department reported Thursday that employers added 288,000 jobs in June, lowering the unemployment rate to 6.1 percent, the lowest since 2008. It was the fifth straight monthly gain of at least 200,000 jobs, the best run since the late 1990s.

Tax rates

Government spending negatively impacts the economy—reduces economic growth and potentially leads to a higher tax rate for future generations Aliabadi 11 (Sara, Alireza Dorestani , Aijana Abdyldaeva, “Budget Deficit, National Debt, and Government Spending: Is Now the Right Time to Cut Deficit and Reduce National Debt?”, Journal of Accounting – Business & Management vol. 18 no. 2 (2011) 74-83, EBSCO) Government budget deficit as well as its cumulative amount, public debt, has been the target of many studies. Budget deficit occurs when government tax revenue is less than government’s spending. Budget deficit and public debt must be financed domestically or

internationally. In either case, the government debt must be repaid by taxing future generations or reducing current spending. Public debt can be repaid by either cutting government spending or taxing individuals. If we don’t cut our spending, then future generation should be taxed. That is, future generations should pay for our current wellbeing. Therefore, we raise the

research question of whether government spending to reduce public debt can negatively affect unemployment rates and

Consumer Price Index (CPI) and worsen the current economic crisis. Government spending can affect the economy in different ways. In one hand, •

Government spending reduces labor-force participation because those who receive stimulus money will not incentive to work. • Government spending makes labor markets inefficient by blocking the flow of workers from inefficient industries to more

efficient ones. • Government spending reduces productivity because participants in the economy will not find reason for competition and innovation. Government spending reduces productivity as resources flow from more productive private sector to less productive public sector . • Government spending increases interest rates by

crowding out private investment. • Government spending increases the uncertainty of return on long-term investments. • Government spending creates opportunities for rent-seeking and political misuse. The resources that could be spent on productivity and economic growth will be wasted on unnecessary lobbying and political favor. • Government spending can increase individuals and firms Rent-seeking distorts economic markets, reduces economic growth, and destroys the free market ethic.

Brink

Now key- future obligations are already threatening the economyRomina Boccia in 2013, Grover M. Hermann Fellow in Federal Budgetary Affairs Thomas A. Roe Institute for Economic Policy Studies The Institute for Economic Freedom and Opportunity at The Heritage Foundation, How the United States’ High Debt Will Weaken the Economy and Hurt Americans, Backgrounder #2768, http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americansWhile tax revenues are expected to return to their historically average levels of 18.5 percent, total federal spending driven in large part by entitlements is projected to hover well above the historical level of about 20 percent in the near term.[6] In a mere 25 years, federal spending under current policy is projected to consume as much as 36 percent of GDP.[7] America’s entitlement programs, by definition, span generations. It is vital in assessing their sustainability to consider their long-term implications. Over the 75-year long-term horizon, the combined unfunded obligations arising from promised benefits in Medicare and Social Security alone exceed $48 trillion.[8] The federal unfunded obligations arising from Medicaid and even from veterans’ benefits are unknown, but would likely add many trillions more to this figure. The International Monetary Fund, [9] the intergovernmental organization of 188 member states that seeks to ensure the stability of the international monetary system, warned that the U.S. lacks a “credible strategy” to stabilize its mounting public debt.[10] Such a strategy must begin with putting

entitlement spending on a more sustainable long-term path. The sooner policymakers act, the less severe and the more gradual the necessary policy changes can be. Policymakers should not delay, since the economic consequences, particularly the impact on individuals in or planning retirement, would be pronounced and severe.

The US should reduce spending now- failure to do so shows lack of commitment and will spiral Christine Harbin Hanson | Dec 09, 2013, Congress Should Live Up to Its Agreement on Spending, http://townhall.com/columnists/christineharbinhanson/2013/12/09/congress-should-live-up-to-its-agreement-on-spending-n1760124/page/fullNow is a critical time for Congress to stop the excuses and finally get federal spending under control .

Capping spending at $967 billion in 2014 is a promise that members of Congress should honor. $967 is not just some

arbitrary number; it’s important for a number of reasons. First, as we approach the debt limit again in the spring, it is hugely symbolic

whether or not Congress and President Obama will stick to the deal they made last time over the

federal budget and the debt ceiling . If policymakers will not live up to past agreements, why should the American people have any faith they will live up to future ones? Second, the separation of powers is once again at stake. Even though Congress has been transferring ever-increasing amounts of authority to the executive branch, it still has control over budgetary issues. Allowing the President to allocate tens of billions of dollars above the spending caps gives him outsized power over the federal purse. Letting the President allocate the sequester cuts, for instance, gives him the power to create the kind of panic he tried to get this past

March when the first round of sequestration cuts went into effect. With nine months of hindsight, we see that the President overplayed his hand by going after the highly visible cuts such as closing White House tours instead of going after all the waste, fraud, and abuse in federal spending . We learned that cutting two percent of the discretionary budget did not cause the world to end.

Earmarks

New legislation gets new spending attached to it – empirics proveZelizer in 2014(Julian, Professor of history and public affairs at Princeton University, “Is there anything wrong with a little pork barrel spending,” CNN opinion, May 12, http://www.cnn.com/2014/05/12/opinion/zelizer-the-case-for-earmarks/)But Reid has a point, and many Republicans who spent much of their careers mastering the art of congressional spending agree with him -- even though many are scared to say so in public. Indeed, even with the recent "ban", according to the conservative Citizens against Government Waste, the 2014 budget included almost $2.7 billion in spending for projects requested by individual legislators (much of which went to defense and national security projects). Legislators have found new ways (called lettermarking or phonemarking) to obtain these kinds of appropriations, though in smaller scale than before. Congressional earmarks and pork barrel spending have a long history in the United States. They have served important purposes that are too often overlooked. Most important, this kind of congressional spending has been vital to successful negotiation on Capitol Hill. Presidents and party leaders have traditionally depended on their influence to insert measures in congressional spending bills to persuade legislators to join them in voting for key legislation that is important to the national interest. Often, earmarked spending has been the most important tool in the effort to persuade legislators to vote against their interests or their traditional position. During the battle over the Civil Rights Act of 1964, President Lyndon Johnson needed as many votes as possible to overcome the Southern filibuster against the bill in the Senate. One of the ways in which Johnson won over a key vote, that of Arizona Democrat Carl Hayden, was to let him know that the administration would throw its support behind a Central Arizona Water Project that the senator's constituents desperately wanted. In exchange Hayden, one of the many Westerners who had traditionally refused to vote to end any filibuster, agreed to vote for cloture if his support was needed in the end. Without a little pork, Johnson would have been unable to obtain his support. We can even see how earmarked spending has proved effective at the state and local level. In New York, the state famously littered university campuses in as many legislative districts as possible so that the state system would have broad and durable support. This worked. The outcome was ongoing, bipartisan support for investment in higher education that has been vital to the residents of New York. Earmarked spending also fits into our respect for decentralized and localized decision-making. When legislators lobby for spending within their district, they are usually responding to the pressures and demands that emanate from the local level. To be sure there are many examples of outrageous earmarks that don't have much justification or value. Political speeches and newspaper stories are filled with accounts of this kind of useless pork. However, for every "bridge to nowhere" there are congressional earmarks that fund university research and public works programs that play a vital role for Americans. Peg McGlinch writes in U.S. News and World Report that the Minnesota congressional delegation obtained about $2 million in earmarked funding that was used to provide more services for members of the National Guard who returned from Iraq and Afghanistan. "Earmarks," she writes, "have funded hundreds of job training programs, paved roads that reduced traffic, supported the police officers protecting our streets, underwritten research on diseases, revitalized blighted neighborhoods, developed technologies to improve national defense, built libraries and schools and given children opportunities to learn." Earmarked spending is a good way to build broad and durable party support for important public policies. Very often, crafting programs that provide pork to legislators has been an effective way to broaden support for a policy. During the New Deal, FDR was keen to provide money to the districts of key Northern legislators so that they would become politically invested in his public works program. That program offered key relief to American workers during the height of the Great Depression. The complex patchwork of military defense contracting throughout the Sunbelt, often a result of legislative efforts to get money to valuable districts, was essential for Republicans in building support for a muscular national security policy against the Soviet Union. So earmarks have their function and Reid has a point. Members of both parties understand that this has been key. The legislative process is not pretty, but there have been many moments when Congress has accomplished big things -- and earmarked spending has been critical to success. It might be time to push back a little on our anti-Washington sentiment and look more carefully at the value of some of the seemingly uglier sides of our political process. Indeed, restoring the pork barrel might help move Congress beyond its current dysfunctional state. Earmarks would be the place to start.

Increases debt

Deficit spending = debt

Deficit spending increases debt – empirics provesThornton 12, Thornton, Daniel L, Vice President and Economic Adviser of the Federal Reserve bank of St. Louis. "The U.S. Deficit/Debt Problem: A Longer-Run Perspective. "Federal Reserve Bank of St. Louis Review 6th ser. 94 (2012): 441-55. Web. 05 July 2014. CSA long-run perspective on U.S. government deficits is helpful in understanding the current deficit/debt problem. Figure 1 shows the history of U.S. budget surpluses/deficits from 1800 through 2011 and Congressional Budget Office baseline

budget projections up to 2020. Three aspects of this figure are noteworthy. First, until the recent financial crisis, large deficits have been associated with great wars—the War of 1812, the Civil War, and World Wars I and II. The only large peacetime deficit occurred in 1933 during the Great Depression, when the deficit hit a peak of 6.6 percent of

GDP. In contrast, the deficits for 2009, 2010, and 2011 have all exceeded 8.7 percent. Second, each large deficit was followed by a period of budget surpluses or very small deficits. Indeed, with the exception of major wars and the Great Depression, the deficit relative to GDP averaged essentially zero. Third, a marked change in the behavior of the deficit occurred circa 1970. For the decade preceding 1970, the United States also had fairly persistent deficits, but they were relatively small—on average, 0.8 percent of GDP. In contrast, the deficit averaged 2.1 percent for the 1970s, 3.9 percent for the 1980s, 2.2 percent for the 1990s, and 3.0 percent for the 2000s. Over the entire 1970-2010 period the deficit averaged 2.8 percent of GDP. The effects of the wartime deficits and peacetime surpluses are reflected in the size of the debt relative to GDP . Figure 2 shows the federal debt as a percent of GDP since 1840. The debt rose dramatically relative to GDP during the Civil War but declined more or less continuously until the United Sates entered WWI, when the percentage again peaked at the Civil War level The percentage again declined until the Great Depression and WWII, when it rose dramatically to a peak of 121 percent in 1946. After WWII the deficit as a percent of GDP declined nearly monotonically before leveling out around 1970. Because the deficit grew faster than GDP on average over the 1970-2007 period, the percent of GDP increased from 36 percent in 1970 to 64 percent in 2007, the highest peacetime level in U.S. history. Since 2007, the debt has increased to more than 100 percent of GDP. The large and persistent deficits over the 38 years preceding the financial crisis suggest that the United States would have had a serious defidt/debt problem without the financial crisis and recession. A backi-of-the-envelope calculation suggests that had the United States continued on the path it was on, the country would have achieved a debt-to-GDP ratio of 100 percent around 2017. The recent events merely forced the recognition of the reality of the situation sooner rather than later. Indeed, several economists and market analysts issued warnings of an impending debt crisis (see Gokhale and Smettrs, 2003; Kotlikoff and Burns, 2012; and references therein). The conclusion that the United States was on a collision course with a debt problem is supported by a simple analysis of government revenues and expenditures as a percent of GDP. Figure 3 presents government spending and revenue as a percent of GDP from 1950 through 2010. The black and blue dashed lines denote the average federal government revenue and expenditures. respectively, as a percent of GDP from 1950 through 1969. The figure shows that after 1970 both revenues and expenditures increased on average relative to the previous two decades; however, revenue increased marginally, while expenditures increased significantly. Revenue averaged 18.2 percent o(GDP for the 1970-2007 period compared with 175 percent

forr the 1950-69 period. while expenditures averaged 20.6 percent and 18. 1 percent. respectively, for the same two periods. On average, the government spent 2.4 percent of GDP more than it received in revenue during the 38-ycar period. Figure 3 shows, however, that tax revenue as a percent of GDP increased from 17.5 percent of G DP to 20.6 percent of GDP from L993 to 2000, This increase is associated with the tax increases introduced in L 993. Revenue subsequently decreased following passage of the Economic Gowth and Tax Relief Reconciliation Act of 2001 (EGTRRA; aka the George W. Bush tax cuts). The decline in tax revenue relative to G DP between 2000 and 2003 was likely due in part to the 2001 recession; 2007 tax revenue as a percent of GDP was at or above the [950-69 average level during the 2006-08 period. The marked decline in revenue as a percent of GDP during the 2009-11 period is likely due to the financial crisis and the accompanying recession Hence, while the Bush tax cuts may have been a contributing factor to the deficit after 2001, this analysis suggests that the average deficit from 1970 to 2007 was largely due Loa marked increase in expenditures relative to GDP: The ratio of debt to GDP was 57 percent in 2000 and increased to only 64 percent by 2007. Hence, most of the increase in the debt over the entire 1970-2007 period occurred because the government spent much more than it collected in taxes—about $6 trillion more.

Investment Crowd out

Failure to reduce the deficit forces investors out of the marketNational Commission on Fiscal Responsibility and Reform, 2010National Commission on Fiscal Responsibility and Reform ’10 (12/1/10, “The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform,” pg online @ lexisnexis)Federal debt this high is unsustainable. It will drive up interest rates for all borrowers - businesses and

individuals - and curtail economic growth by crowding out private investment.By making it more expensive for entrepreneurs and businesses to raise capital, innovate, and create jobs, rising debt could reduce per-capita GDP, each American's share of the nation's economy, by as much as 15 percent by 2035. Rising debt will also hamstring the government, depriving it of the resources needed to respond to future crises and invest in other priorities. Deficit spending is often used to respond to short-term financial "emergency" needs such as wars or recessions. If our national debt grows higher, the federal government may even have difficulty borrowing funds at an affordable interest rate, preventing it from effectively responding. Large debt will put America at risk by exposing it to foreign creditors. They currently own more than half our public debt, and the interest we pay them reduces our own standard of living. The single largest foreign holder of our debt is China, a nation that may not share our country's aspirations and strategic interests. In a worst- case scenario, investors could lose confidence that our nation is able or willing to repay its loans - possibly triggering a debt crisis that would force the government to implement the most stringent of austerity measures.

New budget battles ensure lack of investment- foreign companies are deterred by uncertaintyJacob Funk Kirkegaard and Thilo Hanemann in 2013, Washington’s Gridlock and Foreign Investment, Rhodium Group, This article was published at the Council of Foreign Relations’ “Renewing America” Blog, Kirkegaard is a senior associate with RHG and leads the firm’s advanced economies analysis. Jacob is also a senior fellow at the Peterson Institute for International Economics, where he focuses on structural economic reform issues in Europe and other OECD countries http://rhg.com/articles/washingtons-gridlock-and-foreign-investmentWith the immediate threat of default eliminated, government now needs to quickly restore essential elements of the US regulatory system for foreign investment, like the Committee on Foreign Investment in the United States (CFIUS). Then Democrats and Republicans must come together to craft a long-term plan for America’s fiscal futur e,

one that will restore not only the historical balance between US federal spending and revenue, but also – rather than simply continue to rely on old budgets through the so-called continuing resolution (CR) process – set the right priorities for investment in infrastructure, research and education that will safeguard America’s long-term growth prospects and attractiveness to foreign capital. Only then can the toxic cloud of political uncertainty be lifted and the United States once again offer the most attractive opportunities for global investors.

High debt bad - other nations will stop investing into the economyFoster 13, Foster, J.D. Expert Ph.d in economics and an writer for The Heritage Foundation"The Many Real Dangers of Soaring National Debt." The Heritage Foundation. The Heritage Foundation, 18 Jan. 2013. http://www.heritage.org/research/reports/2013/06/the-many-real-dangers-of-soaring-national-debt. Web. 05 July 2014. CSThe availability of foreign savings may initially blunt the effects of government borrowing on interest rates, but the foreign appetite for any nation’s debt is not unlimited. Citizens of one nation typically desire to

hold the debt and other assets from another country, if only as a matter of prudent portfolio diversification. Wise investors typically diversify their holdings among domestic assets, and the same process holds true for purchasing foreign assets, whether bonds, equities, or land. This portfolio effect is limited to an extent by the home country bias displayed by investors in most countries, and foreign demand is also often limited by the peculiarities of the issuing nation. For example, everything else held equal, the international demand for holding the debt of a small, emerging-market country is likely to be more than proportionally less than the demand for holding the debt of a large, industrial nation. Likewise, the international demand for the debt of countries with bad economic policies will be

less than the demand for debt in countries employing sound policies. From the perspective of foreign demand for its debt, the U.S. benefits extraordinarily from its position in the global economy. With the largest economy, backed by a tradition of respect for the rule of law, extraordinarily deep and diverse financial markets, and a history of low inflation and relatively pro-growth economic policies, foreign demand for U.S. debt is plentiful. The United States also enjoys the extraordinary benefits of providing the world’s primary reserve currency for international commerce, further increasing the demand for U.S. dollar assets such as federal debt. These factors and more come into play in determining the appetite of foreign savers for U.S. debt, and

this appetite is clearly robust. But, at some point as the debt ratio rises, resistance will appear, the appetite slaked, and U.S. interest rates will begin to rise just as though the conventional crowding-out effect were in full force.

Confidence

More stimulus will crush confidence in the economyStuber 9/16/12- (Joseph, full time trader and research analyst, graduated with a B.S. in buisness, wrote extensively for future magazine, " Why QE3 Can't Work: Understanding The Liquidity Trap" http://seekingalpha.com/article/869461-why-qe3-can-t-work-understanding-the-liquidity-trap)//AP

I have said we are our own worst enemy as it is only through the collective population's increased confidence that we will start to borrow and spend. The Fed hasn't provided that confidence with their policy moves . On the

fiscal side it is the same thing. "We the people" just aren't buying and without us no policy move matters. As long as fear and uncertainty permeate the minds of the people they will be prudent and cautious. As long as that continues we will continue to stagnate as an economy.Monetary and fiscal policy - had it worked - would have made sense. It hasn't worked leaving us in a far worse position than before these massive stimulus initiatives. Now we are dealing with the added problem of credit downgrades. As bond prices begin to reflect in the downgrades and they will, we have the added burden of a dramatic increase in carrying costs on these huge debts.

Congressional Gridlock

Spending -> Gridlock

Congress can’t agree on spending habits –new spending furthers gridlockBabington 13, Babington, Charles, Reporter covering Congress and politics for The Associated Press. "Congressional Gridlock Benefiting Seniors at Expense of Young." KOMO News. Sinclair Interactive Media, 10 May 2013. http://www.komonews.com/news/business/Entitlements-unimpeded-growth-is-boon-to-seniors-206937531.html Web. 05 July 2014. CSWASHINGTON (AP) — With Congress increasingly unable to resolve budget disputes, federal programs on automatic pilot are consuming ever larger amounts of government resources. The trend helps older Americans, who receive the bulk of Social Security and Medicare benefits, at the expense of younger people. This generational shift draws modest public debate. But it alarms some policy advocates, who say the United States is reducing vital investments in the future. Because Democrats and Republicans can't reach a grand bargain on deficit spending — with mutually accepted spending cuts and revenue hikes — Social Security, Medicare and Medicaid keep growing, largely untouched. Steady expansions of these nondiscretionary "entitlement" programs require no congressional action, so they flourish in times of gridlock. Meanwhile, many discretionary programs are suffering under Washington's decision-by-indecision habits, in which lawmakers lock themselves into questionable actions because they can't agree on alternatives. The latest example is $80 billion in automatic budget cuts, which largely spare Medicare and Social Security. Growth in these costly but popular programs is virtually impossible to curb without bipartisan agreements. Instead, the spending cuts are hitting the military and many domestic programs that benefit younger Americans. They include early education initiatives such as Head Start, and scientific and medical research. This shift in public resources is dramatic and growing. While 14 cents of every federal dollar not going to interest was spent on entitlement programs in 1962, the amount is 47 cents today, and it will reach 61 cents by 2030, according to an analysis of government data by Third Way, a centrist-Democratic think tank. "Entitlements are squeezing out public investments" in education, infrastructure, research and other fields that have nurtured future prosperity, the study said. "The only way for Democrats to save progressive priorities like NASA, highway funding and clean energy research is to reform entitlements." But Democrats won't consider entitlement cuts until Republicans agree to increase taxes for the rich. And Republicans, who control the House, refuse to do that. The Third Way study was written 10 months ago. Since then, partisan clashes that produced the "fiscal cliff" and the automatic cuts have made matters even worse , said the group's vice

president, Jim Kessler. "The foot is on the accelerator with entitlement programs, and it's on the brakes on investments," Kessler said. "And this country needs more investments." Society must care for the elderly and needy, Kessler said, "but we can't do that at the expense of young people and new ideas." With baby boomers retiring in huge numbers, total benefits for seniors are bound to grow. "But over the course of decades, Medicare and Social Security spending generally grow faster than inflation, per beneficiary," Kessler said. That squeezes nearly everything else. According to White House budget records, discretionary spending comprised two-thirds of total federal outlays in 1968 and mandatory spending made up 27.5 percent. The estimate for 2018 has those shares nearly reversed: discretionary programs will consume 27.5 percent of total federal spending, mandatory programs will consume 62 percent and interest on the debt will take about 10 percent. "Costs linked to the retirement of the baby boom generation," the nonpartisan Congressional Research Service said in a recent report, "are a major cause of rising mandatory spending." The current trajectory of federal health care spending, the report said, "appears unsustainable and could place heavy fiscal burdens on younger generations and generations not yet born." Congress set the sequester cuts into motion as a self-imposed prod in 2011, when the parties deadlocked on how to address deficit spending. The across-the-board cuts were supposed to be so distasteful that both parties would reach a budgetary compromise to avoid them. It didn't happen, and the cuts began taking effect last March. They include a $1.6 billion reduction in the $30 billion budget for the National Institutes of Health, the world's largest supporter of biomedical research. NIH Director Francis Collins said the cuts will delay the start of hundreds of medical research projects. Those paying the price, Collins said, are "ultimately patients and families who are counting on us to find those next promising cures and treatments." Robert Blendon of the Harvard School of Public Health said medical research is popular. He said Congress eventually may find targeted ways to fund it while continuing to cut funds for other important types of research. The bigger problem, Blendon said, is the gridlock caused by congressional Republicans' refusal to raise taxes and Democrats' refusal to consider entitlement changes without new revenues. "This is not going to be solved before the 2014 elections," Blendon said, when all 435 House seats and a third of the Senate seats will be on the ballot.

High government debt is bad – Increases interest rates, lowers wages, undermines congressional action, and risks another fiscal crisesHennessey 14, Hennessey, Keith, Former Assistant to the U.S. President for Economic Policy and Director of the U.S. National Economic Council. "Why High Government Debt Is a Problem." Keith Hennessey. Keith Hennessey, 17 Feb. 2014. http://keithhennessey.com/2014/02/17/high-debt-bad/ Web. 05 July 2014. CSThe Obama Administration is trumpeting that the budget deficit has been cut by half, “the largest four-year reduction since the demobilization from World War II.” Indeed, CBO projects the deficit this year will be 3 percent, maybe dropping a few tenths over the next few years before beginning an inexorable climb driven by demographics, health cost growth, and unsustainable entitlement benefit promises to seniors. If you listen to the President, our only problem is that future one and that’s a few years off. Now that deficits have come down, he says we’re OK for the time being. Deficits around 3 percent will hold debt constant relative to the size of the U.S. economy, and he appears to think that’s fine. In their recently released annual Economic and Budget Outlook CBO lays out the four costs of higher debt (page 7). “Federal spending on interest payments will increase substantially as interest rates rise to more typical levels;” “Because federal

borrowing generally reduces national saving, the capital stock and wages will be smaller than if debt was lower;”

“Lawmakers would have less flexibility … to respond to unanticipated challenges;” “A large debt poses a greater risk of precipitating a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.” CBO attributes these damaging effects to “high and rising debt,” and doesn’t distinguish between high (where we are now, in the mid 70s as a share of GDP) and future entitlement spending-driven growth. The same logic applies both to today’s high debt and to future even higher debt. These are real and significant costs we are bearing today. It’s obvious that we can’t allow debt to increase forever as it will begin to do a few years from now but there’s an additional important question that is being largely ignored. Momentarily setting aside future projected debt growth, is debt/GDP in the mid-70s acceptable? Should the goal be to not let the problem get worse, or both to solve the future debt growth and, over time, to reduce debt/GDP to be closer to the historic pre-crisis average? CBO has done policymakers a great service by explaining these four costs of high and rising debt, and I wish more members of Congress understood them and talked about them. This is important enough that it’s worth the time to understand it well. You can find a slightly expanded version from CBO on pages 9 and 10 here. I want to expand a bit on CBO’s points. I’ll take them in reverse order and start with the last one, the increased risk of a fiscal crisis. Those on the left who argue that high debt isn’t a problem like to (a) pretend that this increased risk is the only consequence of high debt, and then (b) dispute that the higher risk is significant enough to cause concern. I worry that when the U.S. has doubled its debt/GDP in five years, and when our future debt path looks like it does,

that the risk of a fiscal crisis is significant. But this risk is unknowable, and even if we could somehow measure this risk, we can never know when that crisis would occur. My stronger arguments are (1) fiscal crisis risk is undoubtedly higher at a higher debt level; (2) the risk is only going to increase on our current path as debt increases; and (3) there are three other costs to higher debt , so even if you’re not worried about crisis risk, you need to address those other costs. Moving up the list we get to CBO’s “less flexibility” point. CBO’s projected debt path assumes a (very) slow but basically steady return to macroeconomic health. If we have another recession, terrorist attack, or war, the numbers will be worse, and whatever increased government spending or fiscal stimulus we will then need will be initiated from a much weaker starting point (a much higher level of debt). Because our debt is so high we are poorly prepared to address future risks that require significant short-term deficit spending or tax relie f. Then we get to the cost with the greatest political impact: lower future wages. This is really a cost of the big recent deficits that resulted in today’s higher debt, and an additional cost of projected future deficit growth. The reduced national saving caused by big deficits leads to a smaller capital stock. This lowers productivity and therefore wages. To reduce our public debt government would have to save more (or even, perish the thought, balance the budget), leading to higher national saving, a bigger capital stock, higher productivity and higher future wages. To be politically

crass: lower government debt means more shiny new factories with high wage American jobs . I’m willing to sacrifice quite a lot of government spending in exchange for higher future wages. Finally, the item at the top of CBO’s list is the one most likely to drive Congressional action. Our government debt is now 37 percentage points above its pre-crisis average, but government interest payments are relatively low because interest rates are low because the short-term economy is still weak. When the economy eventually recovers and the government debt rolls over, that additional debt is going to increase government net interest payments by about 1.85 percent of GDP (37% X CBO’s 5% 10-year Treasury rate). Relative to the rest of the federal budget, 1.85% of GDP is enormous. That increased interest cost is as much as the federal government will spend this year on all military personnel (uniformed

+ civilian) plus all science, space, and technology research plus all spending on the environment, conservation, national parks, and natural resources plus all spending on highways, airports, bridges, and

all other transportation infrastructure. Higher debt means higher interest costs which will squeeze out spending for other things that government does. It will also increase pressure to raise taxes even further. Government debt is twice as large a share of the economy as it was before the financial crisis. In addition to increasing the risk of another catastrophic financial crisis, high government debt squeezes out other functions of government, creates pressure for higher taxes, leaves policymakers less able to respond to future recessions, wars, and terrorist attacks, and lowers future wage growth. This problem will only increase as entitlement spending growth kicks into high gear a few years from now, but simply stabilizing debt/GDP in the mid 70s is an insufficient goal. Don’t rest on your laurels because deficits are smaller than they used to be. High government debt is a big problem.

Gridlock Hurts Econ

Political gridlock deters foreign direct investment that is vital to the US economy- companies demand policy certainty.Jacob Funk Kirkegaard and Thilo Hanemann in 2013, Washington’s Gridlock and Foreign Investment, Rhodium Group, This article was published at the Council of Foreign Relations’ “Renewing America” Blog, Kirkegaard is a senior associate with RHG and leads the firm’s advanced economies analysis. Jacob is also a senior fellow at the Peterson Institute for International Economics, where he focuses on structural economic reform issues in Europe and other OECD countries http://rhg.com/articles/washingtons-gridlock-and-foreign-investmentThe government shutdown and frequent political log-jams in Washington have caused concern about the attractiveness of US government securities to foreign investors. With the immediate default averted and America’s biggest

foreign creditors having few alternatives to Treasuries for investing their enormous reserves, another casualty of US partisan bickering needs to be recognized : damaged prospects of attracting foreign direct investment to the

US economy . Unlike large foreign portfolio investors, global businesses have numerous choices when they decide where to locate new plants and production capacity. The increasing political uncertainty and necessity to govern-

through-crisis to pass even basic legislation are significant setbacks to efforts to return levels of foreign direct investment in the United States back to pre-crisis levels. For decades, the United States’ has been the world’s primary destination for foreign direct investment, bringing significant benefits to the US economy. Today, foreign firms provide more than 5 million jobs for American workers and account for a significant share of US exports and research spending. In the aftermath of the financial crisis, FDI inflows dropped sharply and only slightly recovered to $160 billion in 2012 (compared to more than $300 billion in 2008). Boosting FDI to pre-crisis levels has become a goal of the Obama administration and Congress alike. The federal government initiated the “Select USA” program to coordinate state level investment promotion efforts; the House recently passed legislation that would require the federal government to study barriers to FDI and to make efforts to remove those barriers (the Global Investment in American Jobs Act). These are good efforts to promote FDI, but they are meaningless in light of the political stalemate undermining the most important determinants of foreign investment: political

stability and sustainable economic growth .

Congressional gridlock undermines US competitiveness- it deters investment by creating uncertainty in the economyJennifer Blanke 5:03 a.m. EDT September 4, 2013, In global economy, U.S. still competitive: Column, USA Today, http://www.usatoday.com/story/opinion/2013/09/04/us-economy-global-competitiveness-report-column/2760101/Economic competitiveness and productivity are keys to economic growth and future prosperity: Nothing is

more crucial in a nation's long-term planning. If America's leaders are to preserve our country's long-standing competitiveness, it is

vital to continue to find ways to overcome political differences in the interest of consistent, long-term planning. The newly published edition of The Global Competitiveness Report, the World Economic Forum's annual study on the long-term economic health of nations, offers encouraging signs that the economic outlook for the United States is brightening. After slipping in the national

competitiveness rankings for four successive years, the U.S. has reversed this trend in 2013, rising from seventh place last year to fifth in the Forum's index. Innovation powerhouse When the Forum compiles its report each year, we seek to do more than just compare a country with its neighbors and trading partners. We try to examine and understand the dynamics that drive competitiveness, living standards and gainful employment. The United States is clearly an innovation powerhouse, and this bodes well for the future, particularly at a time when innovation plays a more central role in underpinning economic success. We also find the

strength of a country's political institutions to be a common element among the world's most future-proof

economies. The U.S. Constitution might have many admirers around the world for its checks and balances among the legislative, executive and

judicial arms, but the gridlock that has characterized recent years has undoubtedly hurt competitiveness .

Nevertheless, subtle year-on-year improvements in such areas as "public trust in politicians" (where the U.S. ranks 50th out of the 148 countries featured in the report) and "transparency of policymaking" (48th) suggests concerns could have subsided somewhat over the past 12 months. This pragmatic leadership approach needs to continue, considering the other areas requiring urgent attention. The most worrisome of these is the "macroeconomic environment" pillar of

competitiveness . Here, the U.S. now ranks 117th — down from 111th last year and 66th in 2008. Much of this low ranking

is explained by the delays in tackling the budget , but it demonstrates how urgently lawmakers need

to define a vision for a sustainable fiscal future . Sustainability is needed because it enables investment, which is key to future prosperity. Health and education, two basic and essential building blocks of a vibrant future economy, are causes for concern, with the U.S. ranking 41st on the quality of its primary education and on infant mortality.

US uncertainty over political gridlock and future budgets deters investment and undermines the economyJohn Dearie, in 2013 EVP for Policy at the Financial Services Forum and co-author of WHERE THE JOBS ARE: Entrepreneurship and the Soul of the American Economy, How Washington-Created Economic Uncertainty Undermines Start-ups and Job Creation, The Capital Exchange, http://www.capitalexchangeblog.com/how-washington-created-economic-uncertainty-undermines-start-ups-and-job-creation/Unable to reach agreement regarding acceptable terms for funding government operations beyond the end of fiscal year 2013, Republicans and Democrats in Congress resolved at midnight on September 30th to allow the government of the United States to partially shut down for the first time in seventeen years. The economic uncertainty associated with the shutdown and partisan gridlock on Capitol Hill is further heightened by the looming prospect that the United States will run out of money to honor its financial obligations on or about October 17th, unless Congress passes legislation to raise the nation’s borrowing limit or “debt ceiling.” The last time Washington policymakers took the nation to the brink of default was in August of 2011 – the same summer that we were conducting roundtables with entrepreneurs in twelve cities around the country, asking them about

the obstacles undermining their efforts to launch new businesses, grow those new firms, and create jobs. That partisan showdown caused business and consumer confidence to plunge, set off the worst financial market turmoil since

the 2008 financial crisis, and resulted in the first-ever downgrade of the U.S. government’s debt

rating . As much as any other factor discussed at our roundtables, the return to anemic growth so soon after the worst economic downturn

since the Great Depression jarred and frightened many of our participating entrepreneurs, causing them to second-guess, postpone, or even

cancel plans to expand and hire. The lack of business, and the uncertainty regarding future business , is the principal obstacle to accelerated hiring, according to many of our roundtable participants. “For us and for most people I talk to, it’s no more business as usual,” said Bob Burns, president of construction management firm RL Burns, Inc. in Orlando, Florida. “We’ve made some pretty good investments in our business in the past – equipment, staff, training, education, and so on. But taking the risk of those investments today is not very wise, and I don’t think many others do it either. It’s very difficult to consider investing money in a future you just can’t see . There’s no way to gauge it or really know

what the next year is going to look like…So today we’re looking to cut back , get lean, and stay lean. We have

absolutely no plans to upgrade our equipment or purchase new computers. They’re going to hang around until they blow up. Any kind of

long-term investment is off the table .”

Uncertainty over budget policy could deter investment in corporate stocksNATSUKO WAKI in 2013, INVESTMENT FOCUS-Two-way Fed uncertainty may trigger risk reappraisal, Reuters, http://www.reuters.com/article/2013/10/11/investment-risks-idUSL6N0I11IY20131011

Economic uncertainty from the U.S. budget impasse and the government shutdown is introducing a new policy risk to investors: instead of tapering, could the Federal Reserve actually boost monetary stimulus? Although not yet a mainstream market assumption, the chance that U.S. monetary policy could move in either direction may encourage investors to shift their portfolios in favour of safer government bonds - and away from

U.S. stocks which had led the rally earlier this year . In the past three episodes of quantitative easing that began in November 2008, equity and other risky assets rallied.

Political gridlock deters foreign direct investment that is vital to the US economy- companies demand policy certainty.Jacob Funk Kirkegaard and Thilo Hanemann in 2013, Washington’s Gridlock and Foreign Investment, Rhodium Group, This article was published at the Council of Foreign Relations’ “Renewing America” Blog, Kirkegaard is a senior associate with RHG and leads the firm’s advanced economies analysis. Jacob is also a senior fellow at the Peterson Institute for International Economics, where he focuses on structural economic reform issues in Europe and other OECD countries http://rhg.com/articles/washingtons-gridlock-and-foreign-investmentThe government shutdown and frequent political log-jams in Washington have caused concern about the attractiveness of US government securities to foreign investors. With the immediate default averted and America’s biggest

foreign creditors having few alternatives to Treasuries for investing their enormous reserves, another casualty of US partisan bickering needs to be recognized : damaged prospects of attracting foreign direct investment to the

US economy . Unlike large foreign portfolio investors, global businesses have numerous choices when they decide where to locate new plants and production capacity. The increasing political uncertainty and necessity to govern-

through-crisis to pass even basic legislation are significant setbacks to efforts to return levels of foreign direct investment in the United States back to pre-crisis levels. For decades, the United States’ has been the world’s primary destination for foreign direct investment, bringing significant benefits to the US economy. Today, foreign firms provide more than 5 million jobs for American workers and account for a significant share of US exports and research spending. In the aftermath of the financial crisis, FDI inflows dropped sharply and only slightly recovered to $160 billion in 2012 (compared to more than $300 billion in 2008). Boosting FDI to pre-crisis levels has become a goal of the Obama administration and Congress alike. The federal government initiated the “Select USA” program to coordinate state level investment promotion efforts; the House recently passed legislation that would require the federal government to study barriers to FDI and to make efforts to remove those barriers (the Global Investment in American Jobs Act). These are good efforts to promote FDI, but they are meaningless in light of the political stalemate undermining the most important determinants of foreign investment: political

stability and sustainable economic growth .

Generic Debt hurts the economy

Triggers collapse

Government debt is spiraling out of control- new spending threatens to ruin the economyRomina Boccia in 2013, Grover M. Hermann Fellow in Federal Budgetary Affairs Thomas A. Roe Institute for Economic Policy Studies The Institute for Economic Freedom and Opportunity at The Heritage Foundation, How the United States’ High Debt Will Weaken the Economy and Hurt Americans, Backgrounder #2768, http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americansU.S. federal spending in 2013, combined with depressed receipts from a weak economy, is on track to result in a deficit of $850 billion. Publicly held debt in the United States will exceed 76 percent of gross domestic product

(GDP) in 2013, and chronic deficits are projected to push U.S. debt to 87 percent of the economy in 10 years.[1] Debt is projected to grow even more rapidly after 2023. Recent economic research, especially the work of Carmen Reinhart, Vincent

Reinhart, and Kenneth Rogoff, confirms that federal debt at such high levels puts the United States at risk for a number of harmful economic consequences, including slower economic growth, a weakened ability to respond to unexpected challenges, and quite possibly a debt-driven financial crisis .[2] The federal government is quickly exhausting its ability to manage its bills, with debt having already reached the statutory debt ceiling. The resulting debate should focus on the need to reduce federal spending immediately and over the long term by making necessary and prudent reforms to the nation’s major entitlement programs, and

thus reduce the continued buildup of debt and the expected harmful consequences increasingly confirmed by academic research.

Debt will cause an economic collapse - default and/or hyperinflation Gorton 12, Gorton, Gary Professor of Finance at the Yale School of Management. "What Does the “national Debt” Even Mean?" Silver Bear Cafe. Crises HQ, 10 Aug. 2012. http://www.silverbearcafe.com/private/08.12/inevitable.html Web. 05 July 2014. CSOur pool of willing lenders is starting to shrink as our creditors are waking up to the fact that treasuries are now a high-risk, low-return investment. To compensate for this the Fed is forced to buy up all the long term U.S. treasuries in an effort to artificially stimulate demand, to keep up the smokescreen. Of course this only inflates the U.S. bond bubble even more. When the pool of willing lenders dries up, the scheme will reach its end and the final bubble will explode. Without lenders, the U.S. government has only two appalling choices: default on debt or hyper-inflate the dollar. hyperinflationOption one is to default on all debt, essentially declaring bankruptcy to renegotiate all obligations. This would create a severe financial shock as the dollar collapses and loses its status as reserve currency. This would lead to a sharp increase in the cost of nearly everything, as more US dollars would be needed to pay for imports, resulting in a catastrophic economic impact for every American. The government will be forced to cut spending dramatically. A broad

range of government payments would have to be stopped, including military salaries, Social Security and Medicare payments, unemployment benefits, tax refunds, etc. Companies would be crushed by a US consumer that would no longer have any buying power. In addition, credit would dry up virtually overnight, which would force untold numbers of companies to shut their doors. Unemployment in the country would spike to obscene levels. Interest rates would rise significantly forcing millions of families with

adjustable mortgages to go into foreclosures. Option two is to have the Federal Reserve create trillions upon trillions of dollars out of thin air. This creates an illusion that the debt is being paid back, but in reality the dollars issued to pay the debt would become increasingly worthless, turning rapid inflation into hyperinflation. This would actually create a much worse scenario then the first option as hyperinflation will be even more

economically destructive for the average American. Prices would soar to unimaginable levels, unemployment would skyrocket. The average American would be forced to work overtime just to put food on the table, that is if he or she is lucky enough to still have a job. It’s worth mentioning that it is highly unlikely that U.S. will choose default (option one). Even though hyper-inflation is by far more destructive for the American people in the long term, the government will most likely try to print its way out. Either way the economy will collapse. Economically, the first option would feel like a heart attack and the second option like a terminal cancer. The ripple effects of either scenario would be unprecedented . It would not be

the end of the world, but you can expect massive social unrest, protests, riots, arson, etc. Supply disruptions on all levels. Basic utility failures and infrastructure decay. Rampant violent crime, specially in metropolitan areas. Eventually followed by a long and very painful readjustment period of living standards for most Americans.

Increase in debt will cause an economic collapse – the brink is nowMoney Morning 13, Money Morning Staff Report. "Debt Crisis to Spark Economic Crash Worse Than 2008, Expert Warns." Money Morning. Money Map Press, 22 Jan. 2013. http://moneymorning.com/2013/01/22/debt-crisis-to-spark-economic-crash-worse-than-2008-expert-warns/ Web. 5 July 2014.Investors should prepare for an upcoming economic collapse far worse than 2008. That's according to Peter Schiff, the economist and CEO for Euro-Pacific capital, who says that if drastic steps are not taking in the coming months, America's $16 trillion federal debt "cancer" will create a massive economic catastrophe unlike anything ever seen. "We have a much bigger collapse coming, not just the markets, but of the economy," Schiff recently told Yahoo Finance. And Schiff is not alone in warning

that the U.S. economy is on the verge of spiraling out-of-control. Since the debt ceiling crisis began heating up, noted economists and investors including Richard Duncan and Nourial Roubani have come to similar conclusions. Roubani recently said that the country has to wake up to the "full extent of its fiscal nightmare." However, while the debt crisis is well known to most Americans, the economy hasn't suffered a major correction for almost 4 years. So the questions remain: Is the threat of collapse for real? And if so,

when? A team of scientists, economists, and geopolitical analysts believes they have proof that the threat is indeed real - and the danger imminent. The work of this team garnered such attention, they were brought in front of the United Nations, UK Parliament, and numerous Fortune 500 companies to share much of their findings.

One member of this team, Chris Martenson, a pathologist and former VP of a Fortune 300 company, explains their findings: "We found an identical pattern in our debt, total credit market, and money supply that guarantees they're going to fail. This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible. "And what's really disturbing about these findings is that the pattern isn't

limited to our economy. We found the same catastrophic pattern in our energy, food, and water systems as well." According to Martenson: "These systems could all implode at the same time. Food, water, energy, money. Everything." Another member of this team, Keith Fitz-Gerald, the president of the Fitz-Gerald Group, went on to explain their discoveries.

"What this pattern represents is a dangerous countdown clock that's quickly approaching zero. And when it does, the resulting chaos is going to crush Americans," Fitz-Gerald says. Dr. Kent Moors, an adviser to 16 world governments on energy issues as well as a member of two U.S. State Department tasks forces on energy also voiced concerns over what he and his colleagues uncovered. "Most frightening of all is how this exact same pattern keeps appearing in virtually every system critical to our society and way of life," Dr. Moors stated. Caption: The work of this team garnered such attention, they were brought in front of the United Nations, U.K. Parliament, and numerous Fortune 500 companies to share much of their findings. Click the short video above to see a sample. "It's a pattern that's hard to see unless you understand the way a catastrophe like this gains traction," Dr. Moors says. "At first, it's almost impossible to perceive. Everything looks fine, just like in every pyramid scheme. Yet the insidious growth of the virus keeps doubling in size, over and over again - in shorter and shorter periods of time - until it hits unsustainable levels. And it collapses the system." Martenson points to the U.S. total credit market debt as an example of this unnerving pattern. "For 30 years - from the 1940s through the 1970s - our total credit market debt was moderate and entirely reasonable," he says. "But then in seven years,

from 1970 to 1977, it quickly doubled. And then it doubled again in seven more years. Then five years to double a third time. And then it doubled two more times after that. "Where we were sitting at a total credit market debt that was 158% larger than our GDP in the early 1940s... By 2011 that figure was 357%." Dr. Moors warns this type of unsustainable road to collapse can be seen today in our energy, food and water production. All are tightly connected and contributing to the economic disaster that lies directly ahead. Editor's note: Germany's military held an investigation into this pattern and concluded it could lead to "political instability and extremism." According to polls, the average American is sensing danger. A recent survey found that 61% of Americans believe a catastrophe is looming - yet only 15% feel prepared for such a deeply troubling event. Fitz-Gerald says people should take steps to protect themselves from what is

happening. "The amount of risky financial derivatives floating around the globe is as much as 20 times size of the entire GDP of the world," he says. "It's unsustainable and impossible to unwind in any kind of orderly way." Moreover, he adds: "People can also forget that the FDIC can only cover a fraction of US bank deposits. It's a false sense of security. Just like state pensions, which could be suspended at any time. A collapse could wipe out these programs. Entitlements like Social Security and Medicare are already bankrupt and simply being propped up." We can see the strain on society already. In two years, Congress won't have any money for transportation, reports the Washington Post. Cities like Trenton, NJ have layed off one-third of the police force due to budget cuts. And other cities like Colorado Springs, CO removed one-third of streetlights, trashcans, and bus routes, reports CNN. Fitz-Gerald also warns of a period of devastating inflation. A recent survey, reports USA Today, notes that in the coming years it could take $150,000 a year in household income for a family to afford basic living expenses - and maybe go out to a movie. Right now, in fact, "52% of Americans feel they barely have enough to afford the basics." "If our research is right," says Fitz-Gerald, "Americans will have to make some tough choices on how they'll go about surviving when basic necessities become nearly unaffordable and the economy becomes dangerously unstable." "People need to begin to make preparations with their investments, retirement savings, and personal finances before it's too late." says Fitz-Gerald.

The US economy is on the verge of collapse, an increase in debt will push us over the brinkKoenig 13, Koenig, Don, Vice President Business Development at Equipment Management & Technology Solutions. "The Coming Economic Crash Caused by World Debt." The Prophetic Year. N.p., May 2013. http://www.thepropheticyears.com/reasons/World%20debt.HTM Web. 5 July 2014. CSDebt and unfunded liabilities promised through entitlement programs is now about 125 trillion dollars. This amount of money in non inflationary dollars is impossible to raise! Thus, the US is now technically bankrupt. In order to keep up the

facade that the US is solvent for even another decade or two, one or more of the following must happen. 1. Taxes must be raised. 2. Government spending will have to be drastically cut. 3. Deficit spending will dramatically increase. If taxes are raised, it will kill the economy and the debt load will get worse and not better. Spending will not be drastically cut because these types of cuts would never get through the political system. Therefore, massive deficit spending will take place. The monetary system will be inflated so that this debt can be paid by using a dollar worth only a fraction of what it is today. This means a much weaker dollar in the future and much higher prices for all goods and services imported to the United States (in short it means we should expect hyper-Inflation). The best long term scenario is that the economy will expand for decades and we will partly grow our way out of this debt crunch (like we temporarily did under Ronald Reagan). But, I do not see stability for that length of time as even a remote possibility in this world full of crises. I think it is only a matter of time before another downturn in the economy or an unforeseen world event brings about the collapse of this house of cards. The catalyst for a crash can come in any number of ways. One likely scenario is that confidence in the US dollar will falter. When this happens interest rates will have to rise dramatically to try to lure foreign investors to re-service our debt. Higher interest rates will then shut down our economy and less tax money will be raised. The debt will still have to be paid at the higher interest rate so the government will print even more money and deficit spending will increase. The dollar will fall in value against other currencies bringing about an inflation spiral in the United States and even more dumping of US dollars for more stable currencies. Banks and institutions holding today's unrealistic low interest loans on property will go under, causing a collapse of pension systems and/or a taxpayer bailout that will worsen

the deficits even further. Many with adjustable rate mortgages will not be able to make the payments and they will default on their loans. The foreclosed houses will be dumped on the market bringing a collapse in all home values. All this in effect will cause an inflationary depression in the largest economy in the world. The fall of the US economy will have a domino effect and bring about a worldwide depression that will further depress the US economy and bring a full fledged inflationary depression worse

than the great depression of the 1930's. When this happens most companies will go bankrupt and will be nationalized. (When I first wrote about the coming economic crash caused by debt in the year 2000, I said the stock market was three times higher than it should be. Since then the market has fallen about 50 percent and risen again twice and the third crash will soon be on its way. I think a 50 percent crash is almost a certainty but it probably will go much lower. Don't expect a fourth recovery this decade. Instead of banks failing like I said next time expect buy-ins where they rob savings to pay for the banks losses. The precedence was set in Cyprus in 2013 and it now being legislated in many nations). Paper money is only worth what it can be traded for in real goods and services. The United States record deficit spending is putting cash into the economy but like all who spend beyond their means the bill will come due. Soon foreign investors will lose confidence and others that hate the US will deliberately cause more pain and the dollar will fall like a rock. The Federal Reserve bank is now creating money and buying most of our own debt to keep interest rates artificially low it will have dire consequences in the future.

Government spending will increase debt, causing economic collapse and financial panicHeritage Foundation in 2014, Federal Spending, Budget, and Debt, http://solutions.heritage.org/budget-and-spending/Following four years of trillion-dollar deficits, the national debt reached $17 trillion and exceeded 100 percent of gross domestic product (GDP). Publicly held debt (the debt borrowed in credit markets, excluding Social Security’s trust fund,

for example) is alarmingly high at three-quarters of GDP. Without further spending cuts, it is on track to rise to a level last seen after World War II, and the worst is yet to come. High federal debt puts the United States at risk for a number of harmful economic consequences, including slower economic growth, a weakened ability to respond to unexpected challenges, and possibly a debt-driven financial crisis . Deficits fell in 2013 because President Obama and Congress raised taxes, a slight improvement in the economy helped to bring in more revenue, and spending cuts from sequestration and spending caps under the Budget Control Act of 2011 took effect. Lawmakers should not take this short-term and modest deficit improvement as a signal to grow complacent about reining in exploding spending. Though deficits will decline for a few more years, within a decade they will again exceed $1 trillion. The Congressional Budget Office projects that federal spending, despite sequestration cuts, will grow 69 percent by 2023, driving deficits higher.

Dependence on bonds

High debt bad for the economy – causes increased interest rates and forces the nation to be reliant on foreign Investors and Bond BuyersFoster 13, Foster, J.D. Expert Ph.d in economics and an writer for The Heritage Foundation"The Many Real Dangers of Soaring National Debt." The Heritage Foundation. The Heritage Foundation, 18 Jan. 2013. http://www.heritage.org/research/reports/2013/06/the-many-real-dangers-of-soaring-national-debt. Web. 05 July 2014. CSA general consensus exists on how, but not necessarily the extent to which, interest rates are normally affected by budget deficits and their resulting changes in the ratio of government debt to the size of the economy.[5] In short, at moderate debt ratio levels, modest increases in the debt ratio can produce very modest increases in interest rates. More relevant to recent U.S. experience, rapid increases in the debt ratio, or substantial increases over an extended period, can produce substantial increases in interest rates. Before turning to empirical results, it is worthwhile to consider the mechanisms by which large budget deficits and rising debt ratios may push interest rates upward. More relevant to recent U.S. experience, rapid increases in the debt ratio, or substantial increases over an extended period, can produce substantial increases in interest rates. The two classic means by which interest rates respond to increasing government debt are inflation and crowding out. The inflation argument follows from observing the strong incentive of highly indebted governments to push up inflation and thereby reduce the price-level-adjusted value of their outstanding debt. In simplest terms, debt is issued at one price level. If government devalues the currency by half, for example, the value of outstanding debt in current dollar terms is cut in half. Debt purchasers build their inflation expectations into the prices they are willing to offer. They may also include an extra interest rate premium as compensation for the possibility inflation may substantially exceed their expectations . Aware of the incentive

facing high-debt countries, debt holders may then raise their inflation risk premium even before the onset of higher inflation. The more debt issued, the greater the risk the government will give in to the inflation surprise temptation, and thus the greater the risk premium. Rapid inflation is then an effective means of reducing a

nation’s practical debt burden only if the rise in inflation is unexpected. Of course, if and when inflation accelerates, interest rates will then increase further. In recent years central banks have been both largely independent of national fiscal authorities and credibly

opposed to high inflation, thus neutralizing this inflation surprise concern. However, if global bond buyers ever lost confidence in a central bank’s independence, its resolve regarding price stability, or its ability to contain inflation, then interest rates would likely jump substantially and very quickly. The second traditional explanation for a debt-to-interest rates relationship, crowding out, observes how government debt competes with private borrowers for national saving: Government borrowing subtracts from domestic saving available to private borrowers who must then bid up the price of their borrowing which, of course, is the interest rate they pay. The trouble with the simple, conventional crowding out argument is it implicitly and incorrectly presumes the U.S. economy effectively operates in isolation, closed to foreign trade and foreign supplies of saving. To the contrary, when the federal government runs a budget deficit the United States is able to import saving from abroad as needed, thereby leaving domestic investment and interest rates largely unaffected and inoculating domestic investment and therefore economic growth. Heavy government borrowing inflicts

substantial, if less obvious, harm on Americans even if interest rates hold steady and private investment is unaffected. As foreign saving is imported to offset government dis-saving and thereby sustain domestic private investment, more of the income earned from domestic production must compensate foreign investors, leaving less domestic income available for Americans. The ability to import savings from abroad is economically beneficial on balance, but not cost-free.

Crowd out private investment

Increased government debt will crowd out private investment and undermine the economyRomina Boccia in 2013, Grover M. Hermann Fellow in Federal Budgetary Affairs Thomas A. Roe Institute for Economic Policy Studies The Institute for Economic Freedom and Opportunity at The Heritage Foundation, How the United States’ High Debt Will Weaken the Economy and Hurt Americans, Backgrounder #2768, http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americansEconomic growth, especially increasing per capita income, depends on the proper functioning of prices to signal and markets to respond, but it also depends fundamentally on increasing the amount and quality of productive capital available to the workforce. The amount of capital employed in the economy needs to increase at least to keep pace with the growth in the labor force to maintain current living standards, and must grow even faster—to

increase the amount of capital per worker—to raise worker productivity and thus wages and salaries. Government deficit spending and its associated debt subtracts from the amount of private saving available for private investment ,

leading to slower economic growth. Unlike what staunch believers of government spending for economic stimulus claim,

government stimulus spending does the opposite of growing the economy. Less economic growth caused by high government spending and debt results in fewer available jobs , lower wages and salaries, and fewer opportunities for career advancement. Prolonged debt overhang in the United States, even at low

interest rates, would be a massive drag on economic growth, leading to significantly reduced prosperity for Americans. In the words of Reinhart, Reinhart, and Rogoff: “This debt-without-drama scenario is reminiscent for us of T. S. Eliot’s (1925) lines in The Hollow Men: ‘This is the way the world ends / Not with a bang but a whimper.’”[17]

Debt halts growth

Increasing federal debt is detrimental to the economy and reduces future growthEdwards 11, Edwards, Chris, director of tax policy studies at Cato and editor of www.DownsizingGovernment.org. He is a top expert on federal and state tax and budget issues. "The Damaging Rise in Federal Spending and Debt", Cato.org, The Cato Institute, 20 September 2011, http://www.cato.org/publications/congressional-testimony/damaging-rise-federal-spending-debt. Web. 05 July 2014. CSAs federal debt grows larger, the problems caused by fiscal uncertainty will get magnified . The CBO notes that

"growing federal debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates. Such a crisis would . . . probably have a very significant negative impact on the country."10 Research by economists Kenneth Rogoff and Carmen Reinhart found that government debt burdens above 90 percent of GDP are associated with lower economic growth.11 After examining data on dozens of countries, they concluded that "high debt is associated with slower growth; a relationship which is robust across advanced and emerging markets."12 High debt can also be associated with inflation crises, "financial repression," and other problems . Furthermore, high public and private debt acts as a "contagion amplifier" in the globalized economy. A new paper by economists at the Bank for International Settlements (BIS) similarly found that when government debt in OECD countries rises above a threshold of about 85 percent of GDP, economic growth is slower.13 As debt rises, borrowers become increasingly sensitive to changes in interest rates and other shocks. "Higher nominal debt raises real volatility, increases financial fragility, and reduces average growth," the authors note.14 The BIS economists conclude that countries should build a "fiscal buffer" by keeping its debt well below the danger threshold. They note that without major reforms, debt-to-GDP levels will soar in coming decades in most advanced economies due to population aging. Thus, one more reason for the United States to cut its spending and debt is to help it weather future financial crises spilling over from countries that are in even worse shape than we are. Baseline Projections Are Optimistic In support of building a large "fiscal buffer," policymakers should recognize that both short-term and long-term CBO projections are optimistic in various ways. Perhaps the future will include some positive budget surprises, but the big risk factors seem to be on the negative side. In CBO's baseline, federal deficits fall substantially over the coming decade, partly due to changes under the recent Budget Control Act. However, spending will be higher than projected if: Policymakers lift caps in the Budget Control Act. Policymakers launch new spending programs or respond to unforeseen crises or wars. Higher interest rates push up interest costs, which is a risk that gets magnified as federal debt grows larger. A major recession causes large cost increases in programs sensitive to economic cycles, such as unemployment insurance. Policymakers respond to another recession with costly new "stimulus" plans. The persistence of Keynesian policy ideas in Washington is an important risk to the outlook for federal debt.

High debt hampers economic growth, statistics proveFoster 13, Foster, J.D. Expert Ph.d in economics and an writer for The Heritage Foundation"The Many Real Dangers of Soaring National Debt." The Heritage Foundation. The Heritage Foundation, 18 Jan. 2013. http://www.heritage.org/research/reports/2013/06/the-many-real-dangers-of-soaring-national-debt. Web. 05 July 2014. CSThe traditional “crowding out” argument is that rising government debt subtracts from the pool of savings available for private investment, thus slowing the growth in labor productivity and wages. Higher interest rates associated with higher debt ratios are the market price signals confirming the crowding out mechanism is at work. As noted above, this simple argument may be weakened when a nation can import savings from abroad, at least until the point that foreign investors’ demand for a nation’s debt is essentially satisfied. A growing body of evidence supports this conjecture as described by The Heritage Foundation’s Salim Furth, from whom this discussion substantially draws.[18] Manmohan Kumar and Jaejoon Woo found that high-debt advanced economies grew an average 1.3 percentage points slower than low-debt countries (below 30 percent of GDP).[19] Stephen Cecchetti, Madhusudan Mohanty, and Fabrizio Zampolli used a different methodology and found that public debt in 18 advanced countries nearly doubled as a share of GDP over the past three decades.[20] They also found that this would have about the same deleterious effects on economic growth as Kumar and Woo suggest. Unfortunately, the message of the relationship between relatively high debt ratios and slower economic growth has been clouded by revelations of substantial methodological flaws in perhaps the best-known modern work in this area—“Growth in a Time of Debt,” by Carmen Reinhart and Kenneth Rogoff.[21] Subsequent work by Reinhart and Rogoff corrected the flaws and reaffirmed the fundamental conclusion regarding the dangers of excessive debt.[22] As noted by Furth, In the end, all of [the] corrections and critiques show that countries with debt above 90 percent of GDP grow on average 2.0 percent less per year than low-

debt countries and 1.0 percent less per year than countries with debt levels between 60 percent and 90 percent of GDP.[23] The facts are

that the U.S. government debt ratio has risen dramatically in recent years, is projected to remain highly elevated in the near term, and is then projected to grow rapidly beginning late in the decade. Simple reason

suggests why this increase in debt would constrain policymakers’ choices in terms of allocating future resources, and theory suggests why it would be expected to increase interest rates substantially and why this increase in interest rates would likely put a severe damper on prospects for economic growth . The empirical evidence

strongly supports these latter conjectures. The recent run-up in government debt is likely to push real (inflation-adjusted)

interest rates far above historical experience once credit and financial markets fully recover . The overall economy should likewise recover toward full employment in the years ahead, and then grow at a moderate pace thereafter consistent with growth in the labor supply and advances in technology. The upshot of the literature on debt, interest rates, and economic growth is that future economic growth is likely to be hampered markedly by recent and projected increases in government debt.

High government debt empirically decreases economic growth- threatens the economyRomina Boccia in 2013, Grover M. Hermann Fellow in Federal Budgetary Affairs Thomas A. Roe Institute for Economic Policy Studies The Institute for Economic Freedom and Opportunity at The Heritage Foundation, How the United States’ High Debt Will Weaken the Economy and Hurt Americans, Backgrounder #2768, http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americansRecent research confirms the dangers posed by high levels of government debt . Reinhart, Reinhart, and Rogoff

examined over 110 years of economic data to conclude that advanced economies whose debt levels reach 90 percent of GDP face much slower economic growth.[11] In 2009, Carmen Reinhart and Rogoff wrote This Time Is Different, a book The Economist called “a magisterial work on the causes and consequences of crises stretching back 800 years.”[12] Their conclusions were based on a vast new accumulation of cross-country data, covering 66 countries across all regions of the world and spanning eight centuries. This dataset made it possible to study country debt episodes and crises much more comprehensively. Reinhart, Reinhart, and Rogoff’s recent work on the impact of high public debt on growth and interest rates is based on this groundbreaking dataset. The economists follow a descriptive approach, comparing economic variables for different countries as averages for debt-to-GDP ratios below and above 90 percent of GDP. Measures of comparison include averages for real GDP growth, real (inflation-adjusted) short-term interest rates, and real long-term interest rates. Public debt overhang episodes are analyzed for the causes of the debt, whether from specific wars, financial crises and economic depression, domestic turmoil, or other factors. The researchers refer to sustained periods of gross country debt persisting above 90 percent of GDP for five years or more as “public debt overhang episodes.”

Identifying 26 such episodes, of which 20 lasted for more than a decade, the research shows that even if such episodes begin with short-lived dramatic events, such as war or a financial crisis, the negative impact from high debt on growth lasts far beyond such events. The authors’ results should serve as a sobering wake-up call for policymakers. Reinhart, Reinhart, and Rogoff discovered that the average growth rate in countries experiencing public debt overhang is 1.2 percentage points lower than in periods with debt below 90 percent of GDP.[13] These public debt overhang episodes last an average of about 23 years. Thus, the cumulative effect of lower growth by one percentage point or more means that national income at the end of the period would be lower by roughly one-fourth. The growth rate of countries with exceptionally high levels of debt—more than 120 percent of the

economy—drops even lower, by an average of 2.3 percentage points, which is roughly two-thirds . These figures indicate just how dire the U.S. situation could become: According to the Congressional Budget Office baseline economic forecast, U.S. GDP is projected to be $25.9 trillion in fiscal year 2023. U.S. publicly held debt is projected to reach nearly 90 percent of GDP that year. Assuming a 2.2 percent growth rate over 23 years, U.S. GDP would reach $42.7 trillion in 2046 if there was no impact from the debt overhang. Applying the crude assumption that GDP would be reduced by 1.2 percentage points, in each year of the assumed 23-year debt overhang period, U.S. GDP growth would be slashed by more than half to a mere 1 percent. This would reduce U.S. GDP by more than $10 trillion, to only $32.6 trillion in 2046. The cumulative effect from the debt overhang would result in a level of GDP lower by nearly one-quarter at the end of the period.

Increases in spending are counterproductive to combating government debtMunkhammar 12 (Johnny, adjunct scholar at the American Enterprise Institute and MP in Sweden, “The End of Stimulus Policy,” American Enterprise Institute, http://www.aei.org/files/2012/06/27/-the-end-of-stimulus-policy_173446935952.pdf)The current debt crisis is very serious and is justifiably on top of the policy agenda. It demands accurate analyses, crisis management and political leadership. In this process, it is essential to study which policy measures have worked and which have not. Keynesian stimulus policies, with vast increases in public expenditure, deficits and debt, have been counter-productive. As an economic recovery comes, the lesson of Keynesian stimulus policy failure must not be forgotten. Such policy must be avoided when policymakers are faced with the next crisis ,

which will inevitably come, in one form or another. Long-term reforms for growth, balanced budgets and limited public expenditure should be in focus for governments as they emerge from the current downturn. The consequences of continuing or repeating failed policies – or unwillingness to correct a harmful policy path – will be serious.

Investors scared off

Aff authors are wrong - An increase in debt will be devastating to the economy – no one will buy up debtGorton 12, Gorton, Gary Professor of Finance at the Yale School of Management. "What Does the “national Debt” Even Mean?" Silver Bear Cafe. Crises HQ, 10 Aug. 2012. http://www.silverbearcafe.com/private/08.12/inevitable.html Web. 05 July 2014. CSSome economists like to imagine that we can just grow our debt endlessly, because we have the ability to print dollars

out of thin air. These "experts" allege that the treasuries market is strong as ever and we can just keep borrowing endlessly. These are the same "experts" that insisted that the real estate prices will continue to rise perpetually, right up to the 2008 crash. They argue, just raise the debt ceiling and keep growing that debt evermore.

But even though we can raise our debt ceiling time after time, there is still a natural debt limit we can not cross. The notion that our government can keep growing our debt without end is preposterous. First, it's based on a foolish assumption that the rest of the world is willing to to lend us money that they know we can't pay back. Second, it ignores a mathematical consequence: exponential growth due to interest alone. We've been able to get away with borrowing so much up until now because the dollar is the world reserve currency, but this privilege has its limits. It's also a privilege we're going to lose because we have been shamelessly abusing it. The Federal Reserve has been keeping the interest artificially low, to help the government keep borrowing. Of course this is no favor on Fed’s part, because the end result is debt enslavement.

Since whatever the government owes is inherited by the people, it’s the people who get screwed at the end. If the interest was allowed to return to market rates, it would help prevent the government from borrowing beyond its means. However, at this point our lenders are realizing that our debt has long passed a sustainable level. If you have ever applied for a loan, you should be familiar with this universal rule: when the borrower is in too much debt, the loan becomes high-risk and so the lender demands a higher interest to make the reward worthy of the risk. With every passing day U.S. plunges into a deeper debt pit and this makes lending to U.S. (by buying treasury securities) a more and more riskier investment. To make things worse, the Fed is devaluing the dollar at an increasing pace by issuing bailouts, stimulus packages, quantitative easing,

etc… and our lenders are realizing this too. This means that the dollars that our creditors are loaning to us now, are worth less when they get them back

Tradeoff I/L

Generic GOP will tradeoff

John Boehner will take the hard line on new spending- he will cut any new spending out from other sectorsHuffpost, 2012 <Huffington post, Romney Argues Big Spending Cuts Would Cause 'Depression,' Contrary To Tea Party Activists, http://www.huffingtonpost.com/2012/05/25/romney-spending-cuts-depression-tea-party_n_1545933.html> Republican House Speaker John Boehner and GOP Presidential nominee Mitt Romney have, in the course of the past week, pushed starkly different approaches to fiscal policy and economic recovery, a window into a broader rift within the GOP between the Tea Party and less absolutist conservatives. Boehner, carrying the Tea Party line on spending, recently said that he would insist that the deficit be cut by a dollar for every dollar increase in the debt limit, or else he would refuse to raise it, helping drive the country toward default. "When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase," Boehner said. "Dealing with our deficit and our debt would help create more economic growth in the United States," Boehner told George Stephanopolous Sunday on ABC's "This Week." "The issue is the debt." Romney, however, said that pushing drastic spending cuts during shaky economic times is a prescription for "recession or depression." Asked by Time's Mark Halperin Wednesday why he wouldn't push major cuts in his first year, Romney responded with reasoning that would be largely uncontroversial if not for the past two years' mainstreaming of an economic philosophy that insists government spending actually costs jobs, rather than creates job. "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 percent. That is by definition throwing us into recession or depression. So I'm not going to do that, of course," Romney said in an answer picked up by former bank regulator William Black, a HuffPost blogger. Boehner, by contrast, said cutting spending will spur the economy by giving "certainty" to the business community. "It would lift this cloud of uncertainty that's causing employers to wonder what's next. So dealing with our debt and our deficit are critically important," he said.

Tradeoff hurts social service

The GOP is committed to budget balancing through cuts- these would come from social service programs.Jonathan Weisman in 2014, Ryan’s Budget Would Cut $5 Trillion in Spending Over a Decade, the New York Times, http://www.nytimes.com/2014/04/02/us/politics/paul-ryan-budget.html?_r=0The unveiling Tuesday of Representative Paul D. Ryan’s newest Republican budget may have redrawn the battle lines for the 2014 election, detailing what his party could do with complete control of Congress and allowing Democrats to

broaden the political terrain beyond health care and the narrower issues of the minimum wage and unemployment benefits. Mr. Ryan, the

House Budget Committee chairman and a possible White House contender in 2016, laid out a budget plan that cuts $5 trillion

in spending over the next decade . He said it would bring federal spending and taxes into balance by 2024, through steep cuts to

Medicaid and food stamps, and the total repeal of the Affordable Care Act just as millions are reaping the benefits of the law. Defense spending

would increase. Domestic programs would be reduced to the lowest levels since modern government

accounting . And Medicare would be converted into a “premium support” system, where people 65 and older could buy private insurance with federal subsidies instead of government-paid health care. “We need to be a proposition party, not just an opposition party,” said Mr. Ryan, Republican of Wisconsin. “We believe we owe it to the country to offer an alternative to the status quo. It’s just that simple.” Even with those tough political choices, the budget would balance in 2024 only because Mr. Ryan is assuming his cuts would prompt a burst of economic growth to raise tax revenues above what independent economists forecast. He also does not adjust the government’s revenue ledger to reflect the cost of repealing the health care law’s tax increases and Medicare cuts, which could total $2 trillion. “This is what elections are about,” said Representative Chris Van Hollen of Maryland, the ranking Democrat on the Budget Committee. “Budgets are the clearest roadmaps for discovering what people’s priorities are.” The Ryan budget will be formally drafted on Wednesday in the Budget Committee and brought to a House vote on Friday — if Republican leaders can muster the 217 votes to pass it over the concerns of moderates who say it goes too far and conservatives who say it does not go far enough. Because Senate Democrats do not intend to even draft a budget this year, the Ryan plan will serve more as a political manifesto than a legislative roadmap for the 113th Congress. “It is not fair, and it is not acceptable to simply sit by and accept the status quo, as Democrats have chosen to do, time and time again,” said Representative Eric Cantor of Virginia, the majority leader. Regardless of its fate, the budget will be pushed to the forefront of the coming campaigns, both parties say, not only in House races but also in critical Senate contests. In some of those contests, like Senate races in Arkansas, Louisiana, Montana and West Virginia — where Republicans seek to take seats held by Democrats — Mr. Ryan’s budget will force them to choose whether to support the plan. “Bill Cassidy has repeatedly voted to slash seniors’ retirement benefits and turn Medicare into a voucher program that forces hundreds of thousands of Louisiana seniors to pay thousands more for their health care each year, and now he must own the new reckless G.O.P. budget proposal that does exactly that,” said Andrew Zucker, communications director for the Campaign for Louisiana, a Democratic group criticizing Mr. Cassidy, a House Republican running to unseat Senator Mary L. Landrieu. Representative Steve Israel of New York, chairman of the Democratic Congressional Campaign Committee, said that in the coming weeks, the committee would be buying online advertising in competitive House districts , making automated

phone calls and creating a new website, “Scandalous,” to tell of district-specific cuts. “ We are going to make this budget the

centerpiece of the next seven months ,” he said. Republican leaders had considered not doing a budget this year, since spending cuts for the current fiscal year and the next were set in December with passage of a bipartisan plan. But House conservatives demanded a document they could take to their strongly Republican districts . The new budget violates some tenets that both parties have tried to observe since the budget fights of 2011 and 2012. Those fights preserved a practice of cutting defense and nondefense programs almost equally while sparing the

poorest Americans from the worst of the belt-tightening .

GOP offsets ensure deep spending cuts on social security programsAssociated Press, 2/22/2013, GOP Bills Aimed to Offset Spending Cuts, http://www.fool.com/investing/general/2013/02/22/gop-bills-aimed-to-offset-spending-cuts.aspxThe Republican-led House last year twice passed bills to replace automatic spending cuts now scheduled to go into effect March 1. The bills, first passed on May 10 and then in an updated version on Dec. 20, both advanced by narrow margins with no Democratic votes. They were never considered in the Senate and did not carry over to the new Congress. The bills would have spared the

Pentagon and certain domestic programs from cuts, now put at $85 billion over the last seven months of this budget year. That money would have been replaced by cuts and other savings from domestic programs totaling more than $300 billion over the next decade. They included no new tax revenues. Republicans said their bills would eliminate bailouts, duplications, slush funds, and fraud. Democrats said they would undermine social service programs that help the poor. Among the principal provisions: Rule-tightening that could reduce food stamp recipients ,

now about 47 million, by about 2 million, and shrink school lunch programs. Blocking illegal immigrants from claiming

refundable tax credits of up to $1,000 a child. Cutting Social Service Block Grant programs, which Republicans say are

duplicative, affecting programs such as Meals on Wheels for the elderly, child care and child abuse prevention. Taking away the government's authority to liquidate "too big to fail" financial institutions to avoid a Wall Street crisis. Eliminating the ability of the new Consumer Financial Protection Bureau to set its own budget. Consolidating dozens of duplicative federal employment training programs. Defunding or limiting several provisions in the new health care act, including provisions that give states incentives to increase their Medicaid rolls. Seeking reductions in health care costs by reining in medical malpractice lawsuits. Eliminating a program to help homeowners who are "underwater" on their mortgages with loan modifications. Requiring federal workers to contribute 5 percent more of their pay toward their pension plans.

Tradeoff hurts education

Budget cuts will decrease government spending to its lowest levels, and cut programs like educationJonathan Weisman in 2014, Ryan’s Budget Would Cut $5 Trillion in Spending Over a Decade, the New York Times, http://www.nytimes.com/2014/04/02/us/politics/paul-ryan-budget.html?_r=0But the toughest cuts would come from domestic programs that have already been reduced steadily since 2011, when Republicans took control of the House. Mr. Ryan’s 2024 domestic spending figure would be lower in nominal dollars than such spending was in 2005. Adjusted for inflation, it would be a 29 percent cut from

today’s levels, and 28 percent below the average level of spending in former President George W.

Bush’s administration . Nor did Mr. Ryan shy away from hot-button issues. Education funding would be cut by $145 billion

over 10 years. Pell grants for college students would lose $90 billion. University students would start being charged interest on their loans while still in school, reaping $40 billion. Federal subsidies for the National Endowments for the Arts and Humanities, as well as the Corporation for Public Broadcasting “can no longer be justified,” Mr. Ryan said.

Budget cuts hurt econ

Budget cuts will harm the economyAlan Pyke in 2010, Deputy Economic Policy Editor for ThinkProgress.org. Before coming to ThinkProgress, Using Austerity To Cure Economies Is Like Using Leeches To Cure Disease, think progress, http://thinkprogress.org/economy/2013/09/10/2598231/research-austerity/Economists have been underestimating the harm caused by pulling back on government spending,

according to new work from economists Òscar Jordà and Alan Taylor. The new work, published in September by the National Bureau of

Economic Research, confirms what austerity opponents have long argued: “expansionary austerity” is a myth, and while cutting spending hurts weak economies far more than strong ones its effect on growth is negative in all circumstances. The economists frame their work using medical history as an analogy. The medieval practice of bloodletting was believed to help cure ailments until 1809 , when a group of doctors conducted the first medical trial, separating hundreds of wounded soldiers into two groups and only bleeding half of their patients. Instead of a battlefield of dying soldiers, Jordà and Taylor have decades of data on fiscal policy and economic growth from the Organization for Economic Cooperation and Development (OECD). Instead of bloodletting, economists have austerity. While their data predates the

present round of austerity in Europe and elsewhere, the authors apply their findings to recent years of economic data from the United Kingdom and find that a full 60 percent of that country’s under-performance

compared to forecasts is due to austerity . Research that had supported the “cut-and-grow” arguments in favor of austerity supporters really showed only that an economy that was already growing when austerity began does not cease to grow.

AT: Reinhart RogoffThe Reinhart-Rogoff study holds true – excessive economic spending is still correlated with sluggish economic performanceTanner in 2013(Michael, Senior Fellow at the CATO institute, “Krugman’s Still Wong,” May 8, http://www.cato.org/publications/commentary/krugmans-still-wrong)For all the attention it has received, the Amherst researchers did not actually disprove Reinhart and Rogoff’s conclusion. Reinhart and Rogoff found that economies grew slower during periods of high debt (defined as government debt greater than

90 percent of GDP) than they did during times of lower debt. The researchers from UMass, on the other hand, found that — wait for

this — economies grew slower during periods of higher debt than they do during times of lower debt. The UMass researchers did find a smaller difference in growth rates (one percentage point versus 1.3 points for the preferred median rates in Reinhart and Rogoff), but that hardly suggests that we are in dire need of more debt. Besides, Reinhart and Rogoff’s model always provided a sort of faux precision to the debt argument. While the UMass researchers agreed that higher debt is correlated with lower growth, they found no evidence of Reinhart and Rogoff’s assertion that growth drops off dramatically above 90 percent of GDP. Did anyone really believe that debt equal to 89 percent of GDP was fine, while 91 percent of GDP sent the economy into a free fall? The point is that governments cannot amass an unlimited amount of liabilities without economic consequences. Numerous studies besides Reinhart and Rogoff’s have shown this, including ones by the European Central Bank, the IMF, and the Bank for International Settlements. No doubt knaves and fools all. More important, however, debt has never been the most important measure of government’s burden on the economy . As Milton Friedman pointed out, the real burden of government is spending, regardless of whether that spending is financed through debt or taxes. Too much debt is clearly bad, but substituting taxes for the debt does not make the problem substantially better .

Which brings us to the question of European “austerity.” Krugman continues to insist that European countries’ austerity has been devastating, and that spending cuts must therefore be resisted. The “case for keeping [the U.K] on the path of harsh austerity isn’t just empirically implausible, it appears to be a complete conceptual muddle,” he wrote this week, and “austerity policies have greatly deepened economic slumps almost everywhere they have been tried.” But there have actually been few spending cuts in Europe, so it makes little sense to blame them for poor performance. A new study by Constantin Gurdgiev of Trinity College in Dublin compared government spending as a percentage of GDP in 2012 with the average level of pre-recession spending (2003–2007). Only three EU countries had actually seen a reduction: Germany, Malta, and Sweden. Not surprisingly, two of those three, Germany and Sweden, are among those countries that have best weathered the economic crisis. Those countries that have suffered most, Greece, Italy, Spain, and Portugal, have all seen spending increases. And what about Great Britain, which has been Krugman’s No. 1 exhibit for the dangers of austerity? Compared with pre-recession levels, British government spending is up by 2.5 percent of GDP, a 29 percent increase in nominal spending. Krugman belittles those who cite countries such as the Baltic nations or Switzerland, whose governments really have cut spending and seen robust economic recoveries. But how does he account for Iceland, considering he himself once called it “a post-crisis miracle?” Iceland actually slashed spending from 57.6 percent of GDP in 2008 to 46.5 percent in 2012, a nearly 20 percent reduction. Yet, while Iceland was one of the countries hardest hit by the international banking crisis of 2008 and the recession that followed, the economy started growing rapidly again in 2010. What most of Europe has seen in abundance is tax increases — exactly the sort of thing Krugman has advocated in the United States. In fact, overall, European countries have raised taxes by $9 for every $1 in spending cuts. One might conclude that it was these tax hikes, rather than nonexistent spending cuts, that are responsible for Europe’s economic slowdown. Something to keep in mind the next time Paul Krugman — or President Obama, for that matter — calls for yet another tax hike on the rich. None of this makes Krugman either a knave or a fool. But it does make him wrong.

The Reinhart Rogoff study is not a silver bullet in favor of government spending – mistakes happen all the time in academic circles. Shuchman in 2013(Daniel, New York fund manager and writer for Forbes Magazine, “That Reinhart and Rogoff Committed a Spreadsheet Error Completely Misses the Point,” Forbes, 4/18, http://www.forbes.com/sites/realspin/2013/04/18/that-reinhart-and-rogoff-committed-a-spreadsheet-error-completely-misses-the-point/)

Somewhat gleefully-toned reports in The New York Times, Financial Times and other publications contend that R&R’s paper is the intellectual foundation of the arguments for spending austerity and debt reduction in the developed world. They note that policymakers such as Rep. Paul Ryan and Olli Rehn of the European Commission, among many others, have approvingly cited “Growth in a Time of Debt” in arguing for fiscal discipline. It is alleged that the debunking of the paper’s methodology undermines the case for spending restraint and fiscal reform in advanced economies. In reality, the only lesson to be drawn from this episode is that academic economics, like many social

sciences, is grounded in hubris and pseudo-precision. And that the modern urge to demand an academic study to “prove” or justify inherently complex and ambiguous decisions is antithetical to clear thinking. R&R’s paper incorporated “over 3,700 annual observations” using a “new multi-disciplinary dataset” from 44 countries spanning 200 years. They crunched these numbers and concluded that debt in excess of 90% of GDP results in economic growth approximately 2 percentage points less than for countries with lower debt ratios. Consider that their “dataset” includes statistics on debt and GDP for such countries as Belgium starting in 1835, Portugal in 1851 and Spain in 1850. Whether or not R&R’s spreadsheet is correct is completely irrelevant. Think about how much controversy there is in the United States today, even with the benefit of massive

electronic databases and the internet, about the appropriate way to calculate inflation, unemployment and other basic economic statistics. There is currently an active debate about the true level of unemployment in Spain and how it compares to official government statistics. The idea that GDP and debt statistics from mid-19th century Spain should be an empirical basis for modern economic policy – with an accuracy as fine-tuned as two percent of GDP – is ludicrous on its face. (If you think Spain has challenges today, read about what was going on there 150 years ago. Let’s put it this way: it’s doubtful their Bureau of Labor Statistics was keeping meticulous records.) The flaw of R&R’s paper is its very premise and the historical data used in it, not the authors’ spreadsheet. Many thoughtful policymakers and economic commentators seem to have been lured by a Siren song of academic endorsement to enhance their valid concerns about the impact of high levels of debt. It is understandable why they sought it. As of now, there have not been many negative consequences associated with high debt. The U.S. government can borrow at all time low interest rates and despite the rapid increase in debt, economic growth is sluggish but not disastrous. There has yet to be a fiscal or Treasury market crisis. Thus, the apparent need some felt to find a prestigious academic authority supporting fiscal reform. It is unfortunate that R&R’s error will provide ammunition for debt deniers to dismiss the need for fiscal discipline. Regardless of the felicity of R&R with the intricacies of Microsoft Excel, those who deny that our national debt must be addressed still have to answer a few basic questions: * Is there any level of public debt that would concern you? * How can we determine how much more debt it is prudent for the United States to assume? * If we continue to run deficits of current magnitude indefinitely, how will we ever know that we are in fiscal danger until we are in the midst of a crisis? * It is natural to seek guidance from historical data. What if the totality of our current circumstance has no true precedent in history? * For example, does it matter that one instrumentality of the U.S. government, the Federal Reserve, is purchasing a substantial percentage of the debt issued by another one, the Treasury Department? Our choice as a society is either to proactively decide based on logic and common sense that debt beyond a certain level is imprudent and risky, or to continue borrowing until we can no longer do so. In that event, we might suffer some combination of inflation, insolvency, crushing interests rates, or other severe consequences. We can commission as many PhD studies as we want to prove or disprove that debt beyond a certain point is or isn’t dangerous. Ultimately, the test will be whether we need to actually touch the stove to know it is hot.

Impact

US k2 Global EconUS economic growth is key to global economic recoveryMcIntyre in 2014 (Douglas A., “U.S. Key to Global Recovery, Says World Bank”, 24/7 Wall St., 15 January

2014, http://247wallst.com/economy/2014/01/15/u-s-key-to-global-recovery-says-world-bank/#ixzz36d9con2R, Date Accessed: 05 July 2014)While the developed economies of the world will stage improvements this year, and the growth of the developing world will accelerate sharply, the United States, the largest nation based on gross domestic product (GDP), is the key to a strong global recovery in 2014. At the core of the U.S. effect is the activity of Federal Reserve and its efforts to taper its stimulus programs. The recovery, in other words, may come down to the decisions of a single central bank. Economists in America and abroad say that if access to money at extremely low interest rates in the United States begins to disappear, the American economy cannot sustain growth, which has only picked up sharply in the past few quarters, both based on GDP improvement and employment gains. The jobless rate in the United States, at 6.7%, is still well above the average when the economy is in strong recovery. American consumer activity is still about two-thirds of GDP, and the foundations of that activity are still modest. The World Bank reports in its new “Global Economic Prospects” analysis that: Growth prospects for 2014 are, however, sensitive to the tapering of monetary stimulus in the United States, which began earlier this month, and to the structural shifts taking place in China’s economy. China likely will continue to step into the limelight as its cements it position as the world’s second largest nation as measured by GDP, and one that is growing much faster than the United States. Other World Bank forecasts: The report forecasts growth in developing countries to pick up from 4.8 percent in 2013 to a slower than previously expected 5.3 percent this year, 5.5 percent in 2015 and 5.7 percent in 2016. While the pace is about 2.2 percentage points lower than during the boom period of 2003-07, the slower growth is not a cause for concern. Almost all of the difference reflects a cooling off of the unsustainable turbo-charged pre-crisis growth, with very little due to an easing of growth potential in developing countries. Moreover, even this slower growth represents a substantial (60 percent) improvement compared with growth in the 1980s and early 1990s. Global GDP is projected to grow from 2.4 percent in 2013 to 3.2 percent this year, stabilizing at 3.4 percent and 3.5 percent in 2015 and 2016, respectively, with much of the initial acceleration reflecting a pick-up in high-income economies. In other words, the consuming economies will help those that produce the goods that are fruits of the recovery in the United States, Europe and Japan. As is the case with almost any forecast of global economic recovery, the most damaged engines of the recession may be unable to stage the recoveries necessary to help the world average. Kaushik Basu, the senior vice president and chief economist at

the World Bank, said: Global economic indicators show improvement. But one does not have to be especially astute to see there are dangers that lurk beneath the surface. The Euro Area is out of recession but per capita incomes are still declining in several countries. We expect developing country growth to rise above 5 percent in 2014, with some countries doing considerably better, with Angola at 8 percent, China 7.7 percent, and India at 6.2 percent. But it is important to avoid policy stasis so that the green shoots don’t turn into brown stubble. Europe was so badly bloodied that some of its nations may not recover for years, if at all. Monetary policy has been among the most important triggers of U.S. economic improvement. And the World Bank has decided to emphasize that as the recovery’s largest single risk.

Global economic growth depends directly on the strength of the US economyIMF 2013 (“Strong U.S. Economy, Strong Global Economy—Two Sides of Same Coin”, IMF Survey Magazine, 19 September 2013, http://www.imf.org/external/pubs/ft/survey/so/2013/new091913a.htm, Date Accessed: 05 July 2014)In a world of increasing economic interconnections, the United States’s stake in the global recovery is greater than ever, IMF Managing Director Christine Lagarde said in a speech to business leaders at the U.S. Chamber of Commerce in Washington, D.C. “What happens elsewhere in the world—be it the success

of recovery in Europe or the continued smooth functioning of supply chains in Asia—matters increasingly for the United States,” Lagarde said. “The converse is also true. What happens here matters increasingly for the global economy.” Her remarks, which focused on the interplay between the global economy and the U.S. economy, also highlighted the need to find joint solutions to secure a lasting, balanced and widely shared global recovery. “Job creation is a critical ingredient of any economic recovery, domestic or global,” she emphasized. Businesses have a key role to play, Lagarde said, but at the same time, policymakers have an important responsibility to help “shape the environment in which businesses and citizens can thrive—and jobs can be created.” Changing global picture Lagarde said that global growth remains subdued, while acknowledging that the global economic environment is changing. She emphasized that economies are moving at different speeds and that the fruits of growth are not evenly shared, both in the United States and

other countries. The U.S. economy is growing and, after a long time, so is the Euro Area. In Japan, aggressive policy support and the ongoing reform process is

helping to spur growth. The emerging market economies, on the other hand, are slowing. “For some, this may be a shift toward more balanced and sustainable growth,” Lagarde told the audience. “For others, it reflects the need to address imbalances that have made them more vulnerable to the recent market turbulence.” Reinforcing the point about global interconnections, Lagarde cited the IMF’s recent “spillover” analysis, which suggests that if the world’s five major economies were to work together to adopt a more rigorous, comprehensive, and compatible set of policies, it could boost global GDP by about 3 percent over the longer run. U.S.

recovery gaining strength Lagarde noted that the U.S. economy is gaining strength, calling this good news for America—and good news for the world economy. Although growth is still modest—well under 2 percent—it should accelerate by a full percentage point next year , Lagarde said, adding that the private sector is playing a key role as the engine of growth and job creation. Despite signs of strengthening, the latest jobs data present a mixed picture, with employment remaining well below pre-crisis levels. “The issue of jobs remains paramount,” said Lagarde, noting that jobs and growth is an increasingly important component of the IMF’s policy advice. Lagarde highlighted three key recommendations for U.S. policymakers, drawn from the IMF’s most recent assessment of the U.S. economy. • Fix public finances. Fiscal consolidation could be slower in the short run, but more action is needed to reduce long-run pressures on the budget. Lagarde also warned that political uncertainty over the budget and debt ceiling were not helpful to the recovery. “It is essential to resolve this, and the earlier the better,” she said, “for confidence, for markets, and for the real economy.” • Appropriately calibrate monetary policy. When the time comes, exit from unconventional monetary policy should be gradual, tied to progress in economic recovery and unemployment, and should be clearly communicated and in a dialogue. •

Complete financial sector reform. While there has been progress on this front, attention needs to focus on the outstanding “danger zones,” such as derivatives and shadow banking. Global interconnections and role of IMF Lagarde underscored the unique role of the U.S. in the global economy, noting that the economy accounts for 11 percent of global trade and 20 percent of global manufacturing. The country’s global financial ties run deep too, she said. Foreign banks hold about $5.5 trillion of U.S. assets, and U.S. banks hold $3 trillion of foreign assets. While these interconnections have great benefits for the United States, they are not without risks, Lagarde cautioned, referring to the collapse of Lehman Brothers five years ago that ushered in “a harsh new reality” across sectors, countries, and the world. That is why an effective IMF is important for the global membership. “Our policy advice, for example—including in core areas like exchange rates or external imbalances—has helped to prevent or to ease the hardship of crises around the world,” said Lagarde. “That, in turn, has helped reduce the possible negative fallout for the U.S. and for all countries.” An effective IMF must also continue to evolve and anticipate what lies ahead. In this connection, the IMF has placed greater emphasis on global interconnections—the economic spillovers between countries and the financial sector. Lagarde also highlighted the set of governance reforms that the IMF is working toward that will help strengthen its capacity to prevent and resolve crises, and at the same time, help broaden its representation to better reflect the changing dynamics of the global economy. “These quota reforms need the support of all our member countries—including the United States,” she said. The IMF is grounded in the principle of good global citizenship. “If countries work together to serve the common interests, everybody wins,” she concluded. “We all have a large stake in these interconnections.”

U.S economic growth is key to global recovery Washington Times 10-[“Obama: Strong U.S. economy key to global recovery” By Erica Werner-Associated Press< http://www.washingtontimes.com/news/2010/nov/10/obama-strong-us-economy-key-global-recovery/>]SEOUL (AP) — President Obama said a strong, job-creating economy in the United States would be the country’s most important contribution to a global recovery as he pleaded with world leaders to work together despite sharp differences. Arriving in South Korea on Wednesday for the G-20 summit, Mr. Obama is expected to find himself on the defensive because of plans by the Federal Reserve to buy $600 billion in long-term government bonds to try to drive down interest rates, spur lending and boost the U.S. economy. Some other nations complain that the move will give American goods an unfair advantage. In a letter sent Tuesday to leaders of the Group of 20 major economic powers, Mr. Obama defended the steps his administration and Congress have taken to help the economy. “The United States will do its part to restore strong growth, reduce economic imbalances and calm markets,” he wrote. “A strong recovery that creates jobs, income and spending is the most important contribution the United States can make to the global recovery.” Mr. Obama outlined the work he had done to repair the nation’s financial system and enact reforms after the worst recession in decades. He implored the G-20 leaders to seize the opportunity to ensure a strong and durable recovery. The summit gets under way on Thursday. “When all nations do their part — emerging no less than advanced, surplus no less than deficit — we all benefit from higher growth,” the president said in the letter. The divisions between the economic powers was evident when China’s leading credit rating agency lowered its view of the United States, a response to the Federal Reserve’s decision to buy more Treasury bonds. Major exporting countries such as China and Germany are complaining that the Federal Reserve’s action drives down the dollar’s value and gives U.S. goods an edge in world markets.

U.S economic growth is key to global recovery Werner 10, Werner, Erica congressional reporter for AP, immigration writer. “Obama: Strong U.S. economy key to global recovery” AP, The Associated Press, 11 Nov 2010. http://www.washingtontimes.com/news/2010/nov/10/obama-strong-us-economy-key-global-recovery/ Web. 05 July 2014. CSSEOUL (AP) — President Obama said a strong, job-creating economy in the United States would be the country’s most important contribution to a global recovery as he pleaded with world leaders to work together despite sharp differences. Arriving in South Korea on Wednesday for the G-20 summit, Mr. Obama is expected to find himself on the defensive because of plans by the Federal Reserve to buy $600 billion in long-term government bonds to try to drive down interest rates, spur lending and boost the U.S. economy. Some other nations complain that the move will give American goods an unfair advantage. In a letter sent Tuesday to leaders of the Group of 20 major economic powers, Mr. Obama defended the steps his administration and Congress have taken to help the economy.

“ The United States will do its part to restore strong growth, reduce economic imbalances and calm markets,” he wrote. “A strong recovery that creates jobs, income and spending is the most important contribution the United States can make to the global recovery.” Mr. Obama outlined the work he had done to repair the nation’s financial system and enact reforms after the worst recession in decades. He implored the G-20 leaders to seize the opportunity to ensure a strong and durable recovery. The summit gets under way on Thursday. “When all nations do their part — emerging no less than advanced, surplus no less than deficit — we all benefit from higher growth,” the president said in the letter. The divisions between the economic powers was evident when China’s leading credit rating agency lowered its view of the United States, a response to the Federal Reserve’s decision to buy more Treasury bonds. Major exporting countries such as China and Germany are complaining that the Federal Reserve’s action drives down the dollar’s value and gives U.S. goods an edge in world markets.

US key to the global economyCaploe 09, Caploe, David, CEO of the Singapore-incorporated American Centre for Applied Liberal Arts and Humanities in Asia, . "Focus Still on America to Lead Global Recovery." The Straight Times. Singapore Press Holdings, 23 Apr. 2009. Web. 5 July 2014. CSIN THE aftermath of the G-20 summit, most observers seem to have missed perhaps the most crucial statement of the entire event, made by United States President Barack Obama at his pre-conference meeting with British Prime Minister Gordon Brown: 'The world has become accustomed to the US being a voracious consumer market, the engine that drives a lot of

economic growth worldwide,' he said. 'If there is going to be renewed growth, it just can't be the US as the engine.' While superficially sensible, this view is deeply problematic. To begin with, it ignores the fact that the global economy has in fact been 'America-centred' for more than 60 years. Countries - China, Japan, Canada, Brazil, Korea, Mexico and so on - either sell to the US or they sell to countries that sell to the US. This system has generally been advantageous for all concerned. America gained certain historically unprecedented benefits, but the system also enabled participating countries - first in Western Europe and Japan, and later, many in the Third World - to achieve undreamt-of prosperity. At the same time, this deep inter-connection between the US and the rest of the world also explains how the collapse of a relatively small sector of the US economy - 'sub-prime'

housing, logarithmically exponentialised by Wall Street's ingenious chicanery - has cascaded into the worst global economic crisis since the Great Depression. To put it simply, Mr Obama doesn't seem to understand that there is no other engine for the world

economy - and hasn't been for the last six decades. If the US does not drive global economic growth, growth is not going to happen. Thus, US policies to deal with the current crisis are critical not just domestically, but also to the entire world. Consequently, it is a matter of global concern that the Obama administration seems to be following Japan's 'model' from the 1990s: allowing major banks to avoid declaring massive losses openly and transparently, and so perpetuating 'zombie' banks - technically alive but in reality dead. As analysts like Nobel laureates Joseph Stiglitz and Paul Krugman have pointed out, the administration's unwillingness to confront US banks is the main reason why they are continuing their increasingly inexplicable credit freeze, thus

ravaging the American and global economies.

Resource warsEconomic decline causes resource wars—preventative institutions cant solve the impactBusiness Insider, 11[Ricky Kreitner, “Serious people are starting to realize that we may be looking at World War III,” Aug, 8, 2011, http://articles.businessinsider.com/2011-08-08/politics/30089820_1_credit-rating-standard-poor-interest-rates]bg

The statement released Friday by Standard & Poor's explaining its downgrade of the United States' credit rating expressed greater concern about the inability of the American political system to handle troublesome economic realities than it did about those economic realities themselves. It read: "The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011." Thus, what directly prompted the historic decision to downgrade the U.S. credit rating was worsening political dysfunction, not the "economic challenges" which Standard & Poor's described as "ongoing." The political, even geopolitical, repercussions of those challenges can only be expected to grow. Noting liberal despair over the government's inability to combat economic depression, and conservative skepticism that traditional tools will be effective, John Judis of The New Republic argues that a global depression far longer and more severe than anyone expected now seems nearly impossible to avoid. Judis believes that the coming "depression" will be accompanied by geopolitical upheaval and institutional collapse. "As the experience of

the 1930s testified, a prolonged global downturn can have profound political and geopolitical repercussions.

In the U.S. and Europe, the downturn has already inspired unsavory, right-wing populist movements. It could also bring about trade wars and intense competition over natural resources, and the eventual breakdown of important institutions like European Union and the World Trade Organization. Even a shooting war is possible." Daniel Knowles of the Telegraph has noticed a similar trend. In a post titled, "This Really Is Beginning To Look

Like 1931," Knowles argues that we could be witnessing the transition from recession to global depression that last occurred two years after the 1929 market collapse, and eight years before Germany invaded Poland, triggering the Second World War: "The difference today is that so far, the chain reaction of a default has been avoided by bailouts. Countries are not closing down their borders or arming their soldiers – they can agree on some solution, if not a good solution. But the fundamental problem – the spiral downwards caused by confidence crises and ever rising interest rates – is exactly the same now as it was in 1931. And as Italy and Spain come under attack, we are reaching the limit of how much that sticking plaster can heal. Tensions between European countries unseen in decades are emerging."

War

Decline causes war

Economic collapse causes a nuclear disasterHarris and Burrows ‘9, Mathew J. Burrows is a counselor in the National Intelligence Council (NIC), the principal drafter of Global Trends 2025: A Transformed World, Jennifer Harris is a member of the NIC’s Long Range Analysis Unit, “Revisiting the Future: Geopolitical Effects of the Financial Crisis”, The Washington Quarterly, April, http://www.ciaonet.org/journals/twq/v32i2/f_0016178_13952.pdf, Web. 05 July 2014. CSIncreased Potential for Global Conflict Of course, the report encompasses more than economics and indeed believes the future is likely to be the result of a number of intersecting and interlocking forces. With so many possible permutations of outcomes, each with ample opportunity for unintended consequences, there is a growing sense of insecurity. Even so, history may be more instructive than ever. While we continue to believe that the Great Depression is not likely to be repeated, the lessons to be drawn from that period include the harmful effects on fledgling democracies and multiethnic societies (think Central Europe in 1920s and 1930s) and on the sustainability of multilateral institutions ( think League of Nations in the same period). There is no reason to think that this would not be true in the twenty-first as much as in the twentieth century. For that reason, the ways in which the potential for greater conflict could grow would seem to be even more apt in a constantly volatile economic environment as they would be if change would be steadier. In surveying those risks, the report stressed the likelihood that

terrorism and nonproliferation will remain priorities even as resource issues move up on the international agenda. Terrorism’s appeal will decline if economic growth continues in the Middle East and youth unemployment is reduced . For

those terrorist groups that remain active in 2025, however, the diffusion of technologies and scientific knowledge will place some of the world’s most dangerous capabilities within their reach. Terrorist groups in 2025 will likely be a combination of descendants of long established groups inheriting organizational structures, command and control processes, and training procedures necessary to conduct sophisticated attack and newly emergent collections of the angry and disenfranchised that become self-radicalized , particularly in the absence of economic outlets that would become narrower in an economic downturn. The most dangerous casualty of any economically-induced drawdown of U.S. military presence would almost certainly be the Middle East . Although Iran’s acquisition of

nuclear weapons is not inevitable, worries about a nuclear- armed Iran could lead states in the region to develop new security arrangements with external powers, acquire additional weapons, and consider pursuing their own nuclear ambitions. It is not clear that the type of stable deterrent relationship that existed between

the great powers for most of the Cold War would emerge naturally in the Middle East with a nuclear Iran. Episodes of low intensity conflict and terrorism taking place under a nuclear umbrella could lead to an unintended escalation and broader conflict if clear red lines between those states involved are not well established. The close proximity of potential nuclear rivals combined with underdeveloped surveillance capabilities and mobile dual-capable Iranian missile systems also will produce inherent difficulties in achieving reliable indications and warning of an impending nuclear attack. The lack of strategic depth in neighboring states like Israel, short warning and missile flight times, and uncertainty of Iranian intentions may place more focus on preemption rather than defense, potentially leading to escalating crises. Types of conflict that the world continues to experience, such as over resources, could reemerge, particularly if protectionism grows and there is a resort to neo-mercantilist practices. Perceptions of renewed energy scarcity will drive countries to take actions to assure their future access to energy supplies. In the worst case, this could result in interstate conflicts if government leaders deem assured access to energy resources, for example, to be essential for maintaining domestic stability and the survival of their regime. Even actions short of war, however, will have important geopolitical implications. Maritime security concerns are providing a rationale for naval buildups and modernization efforts, such as China’s and India’s development of blue water naval capabilities. If the fiscal stimulus focus for these countries indeed turns inward,

one of the most obvious funding targets may be military. Buildup of regional naval capabilities could lead to increased tensions, rivalries, and counterbalancing moves, but it also will create opportunities for multinational cooperation in

protecting critical sea lanes. With water also becoming scarcer in Asia and the Middle East, cooperation to manage changing water resources is likely to be increasingly difficult both within and between states in a more

dog-eat-dog world. What Kind of World will 2025 Be? Perhaps more than lessons, history loves patterns. Despite widespread changes in the world today, there is little to suggest that the future will not resemble the past in several respects. The report asserts that, under most scenarios, the trend toward greater diffusion of authority and power that has been ongoing for a couple of decades is likely to accelerate because of the emergence of new global players, the worsening institutional deficit, potential growth in regional blocs, and enhanced strength of non-state actors and networks. The multiplicity of actors on the international scene could either strengthen the international system, by filling gaps left by aging post-World War II institutions, or could further fragment it and incapacitate international cooperation. The diversity in both type and kind of actor raises the likelihood of fragmentation occurring over the next two decades, particularly given the wide array of transnational challenges facing the international community. Because of their growing geopolitical and economic clout, the rising powers will enjoy a high degree of freedom to customize their political and economic policies rather than fully adopting Western norms. They are also likely to cherish their policy freedom to maneuver, allowing others to carry the primary burden for dealing with terrorism, climate change, proliferation, energy security, and other system maintenance issues. Existing multilateral institutions, designed for a different geopolitical order, appear too rigid and cumbersome to undertake new missions, accommodate changing memberships, and augment their resources. Nongovernmental organizations and philanthropic foundations, concentrating on specific issues, increasingly will populate the landscape but are unlikely to affect change in the absence of concerted efforts by multilateral institutions or governments. Efforts at greater inclusiveness, to reflect the emergence of the newer powers, may make it harder for international organizations to tackle transnational challenges. Respect for the dissenting views of member nations will continue to shape the agenda of organizations and limit the kinds of solutions that can be attempted. An ongoing financial crisis and prolonged recession would tilt the scales even further in the direction of a fragmented and dysfunctional international system with a heightened risk of conflict . The report concluded that the rising BRIC powers (Brazil, Russia, India, and China) seem averse to challenging the international system, as Germany and Japan did in the nineteenth and twentieth centuries, but this of course could change if their widespread hopes for greater prosperity become frustrated and the current benefits they derive from a globalizing world turn negative .

Economic Decline causes war – increases willingness to confront powers and decreases pragmatismOckham ‘8, Ockham Research. Ockham Research is an independent equity research provider based in Atlanta, Georgia. Ockham covers an expansive universe of stocks mostly in the US, but also from a variety of exchanges throughout the world. “Economic Distress and Geopolitical Risks” Ockham Research, November 2008. http://seekingalpha.com/article/106562-economic-distress-and-geopolitical-risks Web. 05 July 2014. CSThe economic turmoil roiling world markets right now brings with it plenty of pain. Jobs are being lost, people’s savings decimated, retirement plans/goals thrown out the window, etc. Hard times bring with them harsh consequences. However, it is perhaps useful to be mindful of the geopolitical risks that accompany economic dislocation. Many analysts are eager to compare the difficulties now confronting the global economic system with those of the Great Depression. While I do not believe that the world is facing a second Great Depression, it might be worthwhile to recall from history that the Great Depression spawned geopolitical turmoil that lead to the Second World War. The incoming Obama administration—and Democratic members of Congress who talk of implementing massive defense cutbacks—may want to remember the lessons of the past as they stand on the threshold of power.¶ The hardship and turmoil which impacted the world during the Great Depression provided fertile ground for the rise of fascist, expansionist regimes in Germany, Italy and Japan. Hard times also precluded the Western democracies from a more muscular response in the face of growing belligerence from these countries. The U nited S tates largely

turned inward during the difficult years of the 1930s. The end result was a global war of a size and scale never seen by man

either before or since. Economic hardship is distracting. It can cause nations to turn their focus inward with little or no regard for rising global threats that inevitably build in tumultuous times. Authoritarian regimes invariably look for scapegoats to blame for the hardship affecting their populace. This enables them to project the anger of their citizenry away from the regime itself and onto another race, country, ideology, etc.¶ Looking at the world today, one can certainly envision numerous potential flashpoints that could become problematic in a protracted economic downturn. Pakistan, already a hotbed of Islamic extremism and armed with atomic weapons, has been particularly hard hit by the global economic crisis. An increasingly impoverished Pakistan will be harder and harder for its new and shaky democratically-

elected government to control. Should Pakistan’s economic troubles cause its political situation—always chaotic—to

spin out of control, this would be a major setback in the global war on terror. ¶ Russia, whose economy, stock markets and financial system have literally imploded over the past few months, could become increasingly problematic if faced with a protracted economic downturn. The increasingly authoritarian

and aggressive Russian regime is already showing signs of anger projection. Its invasion of Georgia this summer and increasing willingness to confront the West reflect a desire to stoke the pride and anger of its people against

foreign powers—particularly the U nited S tates. It is no accident that the Russians announced a willingness to deploy tactical

missile systems to Kaliningrad the day after Barack Obama’s election in the U.S. This was a clear “shot across the bow” of the new administration and demonstrates Russian willingness to pursue a much more confrontational foreign policy going forward. Furthermore, the collapse in the price of oil augers poorly for Russia’s economy. The Russian budget reputedly needs oil at $70 per barrel or higher in order to be in balance. Russian foreign currency reserves, once huge, have been depleted massively over the past few months by ham-fisted attempts to

arrest the slide in both markets and the financial system. Bristling with nuclear weapons and nursing an ego still badly bruised by the collapse of the Soviet Union and loss of superpower status, an impoverished and unstable Russia would be a dangerous thing to behold.¶ China too is threatened by the global economic downturn. There is no doubt that China has emerged during the past decade as a major economic power. Parts of the country have been transformed by its meteoric growth. However, in truth, only about a quarter of the nation’s billion plus inhabitants—those living in the thriving cities on the coast and in Beijing—have truly felt the impact of the economic boom. Many of these people have now seen a brutal bear market and are adjusting to economic loss and diminished future prospects. However, the vast majority of China’s population did not benefit from the economic boom and could become increasingly restive in an economic slowdown. Enough economic hardship could conceivably threaten the stability of the regime and would more than likely make China more bellicose and unpredictable in its behavior, with dangerous consequences for the U.S. and the world. ¶ Economic

hardship invariably has consequences that can dwarf the original impact of those troubles. With the U.S. already at war and facing an increasingly troubled world, it is probably not a good time to make large reductions to the defense budget. With the U.S. government carrying massively greater amounts of debt now as a result of the financial carnage of the past few months, there will be increased pressure to wring savings out of almost every element of government. However, given past experience in tough economic times, it would be wise for our new government to understand the dire need to maintain a strong national defense.

Economic decline causes global instability and failed states Green and Schrage 09, Michael J Green Center for Strategic and International Studies, Associate Professor at Georgetown University. Steven P Schrage is the, State Department and Ways & Means Committee, Asia Times, 2009 http://www.atimes.com/atimes/Asian_Economy/KC26Dk01.html, Web. 05 July 2014. CSFacing the worst economic crisis since the Great Depression, analysts at the World Bank and the US Central

Intelligence Agency are just beginning to contemplate the ramifications for international stability if there is not a recovery in the next year. For the most part, the focus has been on fragile states such as some in Eastern Europe. However, the Great

Depression taught us that a downward global economic spiral can even have jarring impacts on great powers. It is no mere coincidence that the last great global economic downturn was followed by the most destructive war in human

history . In the 1930s, economic desperation helped fuel autocratic regimes and protectionism in a downward economic-security death spiral that engulfed the world in conflict. This spiral was aided by the preoccupation of the United States and other leading nations with economic troubles at home and insufficient attention to working with other powers to maintain stability abroad. Today's challenges are different, yet 1933's London Economic Conference, which failed to stop the drift toward deeper depression and world war, should be a cautionary tale for leaders heading to next month's London Group of 20 (G-20) meeting. There is no question the US must urgently act to address banking issues and to restart its economy. But the lessons of the past suggest that we will also have to keep an eye on those fragile threads in the international system that could begin to unravel if the financial crisis is not reversed early in the Barack Obama administration and realize that economics and security are intertwined in most of the critical challenges we face. A disillusioned rising power? Four areas in Asia merit particular attention, although so far the current financial crisis has not changed Asia's fundamental strategic picture. China is not replacing the US as regional hegemon, since the leadership in Beijing is too nervous about the political implications of the financial crisis at home to actually play a leading role in solving it internationally. Predictions that the US will be brought to its knees because China is the leading holder of US debt often miss key points. China's currency controls and full employment/export-oriented

growth strategy give Beijing few choices other than buying US Treasury bills or harming its own economy. Rather than creating new rules or

institutions in international finance, or reorienting the Chinese economy to generate greater long-term consumer demand at home, Chinese leaders are desperately clinging to the status quo (though Beijing deserves credit for short-term efforts to stimulate economic growth). The greater danger with China is not an eclipsing of US leadership, but instead the kind of shift in strategic orientation that

happened to Japan after the Great Depression. Japan was arguably not a revisionist power before 1932 and sought instead to converge with the global economy through open trade and adoption of the gold standard. The worldwide depression and protectionism of the 1930s

devastated the newly exposed Japanese economy and contributed directly to militaristic and autarkic policies in Asia as the Japanese people reacted against what counted for globalization at the time. China today is similarly converging with the global economy, and many experts believe China needs at least 8% annual growth to sustain social stability. Realistic growth predictions for 2009 are closer to 5%. Veteran China hands were watching closely when millions of migrant workers returned to work after the Lunar New Year holiday last month to find factories closed and jobs gone. There were pockets of protests, but nationwide unrest seems unlikely this year, and Chinese leaders are working around the clock to ensure that it does not happen next year either. However, the economic slowdown has only just begun and nobody is certain how it will impact the social contract in China between the ruling communist party and the 1.3 billion Chinese who have come to see President Hu Jintao's call for "harmonious society" as inextricably linked to his promise of "peaceful development". If the Japanese example is any precedent, a sustained economic slowdown has the potential to open a

dangerous path from economic nationalism to strategic revisionism in China too. Dangerous states It is noteworthy

that North Korea, Myanmar and Iran have all intensified their defiance in the wake of the financial crisis, which has distracted the world's leading nations, limited their moral authority and sown potential discord. With Beijing worried about the potential impact of North Korean belligerence or instability on Chinese internal stability, and leaders in Japan and South Korea under siege in parliament because of the collapse of their stock markets, leaders in the North Korean capital of Pyongyang have grown increasingly

boisterous about their country's claims to great power status as a nuclear weapons state. The junta in Myanmar has chosen this moment to

arrest hundreds of political dissidents and thumb its nose at fellow members of the 10-country Association of Southeast Asian Nations. Iran continues its nuclear program while exploiting differences between the US, UK and France (or the P-3 group)

and China and Russia - differences that could become more pronounced if economic friction with Beijing or Russia crowds out

cooperation or if Western European governments grow nervous about sanctions as a tool of policy. It is possible that the economic downturn will make these dangerous states more pliable because of falling fuel prices (Iran) and greater need for foreign aid (North Korea and Myanmar), but that may depend on the extent that authoritarian leaders care about the well-being of their people or face internal political pressures linked to the economy. So far, there is little evidence to suggest either and much evidence to suggest these dangerous states see an opportunity to advance their asymmetrical advantages against the international system. Challenges to the democratic model The trend in East Asia has been for developing economies to steadily embrace democracy and the rule of law in order to sustain their national success. But to thrive, new democracies also have to deliver basic economic growth. The economic crisis has hit democracies hard, with Japanese Prime Minister Aso Taro's approval collapsing to single digits in the polls and South Korea's Lee Myung-bak and Taiwan's Ma Ying Jeou doing only a little better (and the collapse in Taiwan's exports - particularly to China - is sure to undermine Ma's argument that a more accommodating stance toward Beijing will bring economic benefits to Taiwan). Thailand's new coalition government has an uncertain future after two years of post-coup drift and now economic crisis. The string of old and new democracies in East Asia has helped to anchor US relations with China and to maintain what former secretary of state Condoleezza Rice once called a "balance of power that favors freedom". A reversal of the democratic expansion of the past two decades would not only impact the global balance

of power but also increase the potential number of failed states, with all the attendant risk they bring from harboring terrorists to incubating pandemic diseases and trafficking in persons. It would also undermine the demonstration effect of liberal norms we are urging China to embrace at home. Protectionism The collapse of financial markets in 1929 was compounded by protectionist measures such as the Smoot-Hawley tariff act in 1932. Suddenly, the economic collapse became a zero-sum race for autarkic trading blocs that became a key cause of war. Today, the globalization of finance, services and manufacturing networks and the World Trade

Organization (WTO) make such a rapid move to trading blocs unlikely. However, protectionism could still unravel the international system through other guises. Already, new spending packages around the world are providing support for certain industries that might be perceived by foreign competitors as unfair trade measures, potentially creating a "Smoot-Hawley 2.0" stimulus effect as governments race to prop up industries. "Buy American" conditionality in the US economic stimulus package earlier this year was watered down somewhat by the Obama administration, but it set a tempting precedent for other countries to put up barriers to close markets.

Economic decline causes great power wars—multiple studiesRoyal, Director of Cooperative Threat Reduction at the US Dept. of Defense, 10[Jedidiah, “Economic Integration, Economic Signaling and the Problem of Economic Crisis,” Economics of War and Peace: Economic, Legal, and Political Perspectives, 2010 p. 205-224]bg

Less intuitive is how periods of economic decline may increase the likelihood of external conflict . Political science literature has contributed a moderate degree of attention to the impact of economic decline and the security and defence behaviour of interdependent states. Research in this vein has been considered at systemic, dyadic and national levels. Several notable contributions follow. First, on the systemic level, Pollins (2008) advances Modelski and Thompson's (1996) work on leadership cycle theory, finding that rhythms in the global economy are associated with the rise and fall of a pre-eminent power and the often bloody transition from one pre-eminent leader to the next. As such, exogenous shocks such as economic crises could usher in a redistribution of relative power (see also Gilpin, 1981) that leads to uncertainty about power balances, increasing the risk of miscalculation (Fearon, 1995). Alternatively, even a relatively certain redistribution of power could lead to a permissive environment for conflict as a rising power may seek to challenge a declining power (Werner, 1999). Separately, Pollins (1996) also shows that global economic cycles combined with parallel leadership cycles impact the likelihood of conflict among major, medium and small powers, although he suggests that the causes and connections between global economic conditions and security conditions remain unknown. Second, on a dyadic level, Copeland's (1996, 2000) theory of trade expectations suggests that 'future expectation of trade' is a significant variable in understanding economic conditions and security behaviour of states. He argues that interdependent states are likely to gain pacific benefits from trade so long as they have an optimistic view of future trade relations. However, if the expectations of future trade decline, particularly for difficult to replace items such as energy resources, the likelihood for conflict increases, as states will be inclined to use force to gain access to those resources. Crises could potentially be the trigger for decreased trade expectations either on its own or because it triggers protectionist moves by interdependent states.4 Third, others have considered the link between economic decline and external armed conflict at a national level. Blomberg and Hess (2002) find a strong correlation between internal conflict and external conflict, particularly during periods of economic downturn. They write, The linkages between internal and external conflict and prosperity are strong and mutually reinforcing. Economic conflict tends to spawn internal conflict, which in tum returns the favour. Moreover, the presence of a recession tends to amplify the extent to which international and external conflicts self-reinforce each other. (Blomberg & Hess, 2002, p. 89) Economic decline has also been linked with an increase in the likelihood of terrorism (Blomberg, Hess, & Weerapana, 2004), which has the capacity to spill across borders and lead to external tensions. Furthermore, crises generally reduce the popularity of a sitting government. 'Diversionary theory' suggests that, when facing unpopularity arising from economic decline, sitting governments have increased incentives to fabricate external military conflicts to create a 'rally around the flag' effect. Wang (1996), DeRouen (1995), and Blomberg, Hess, and Thacker (2006) find supporting evidence showing that economic decline and use of force are at least indirectly correlated. Gelpi (1997), Miller (1999), and Kisangani and Pickering (2009) suggest that the tendency towards diversionary tactics are greater for democratic states than autocratic states, due to the fact that democratic leaders are generally more susceptible to being removed from office due to lack of domestic support. DeRouen (2000) has provided evidence showing that periods of weak economic performance in the United States, and thus weak Presidential popularity, are statistically linked to an increase in the use of force.

Economic downturn causes warMead, Sr fellow in U.S. Foreign Policy at the Council on Foreign Relations 2009 [Henry , , The New Republic, 2/4/09, http://www.tnr.com/politics/story.html?id=571cbbb9-2887-4d81-8542-92e83915f5f8&p=2]

So far, such half-hearted experiments not only have failed to work; they have left the societies that have tried them in a progressively worse position, farther behind the front-runners as time goes by. Argentina has lost ground to Chile ; Russian development has fallen farther behind that of the Baltic states and Central Europe. Frequently, the crisis has weakened the power of the merchants, industrialists, financiers, and professionals who want to develop a liberal capitalist society integrated into the world. Crisis can also strengthen the hand of religious extremists, populist radicals, or authoritarian traditionalists who are determined to resist liberal capitalist society for a variety of reasons . Meanwhile, the companies and banks based in these societies are often less established and more vulnerable to the consequences

of a financial crisis than more established firms in wealthier societies. As a result, developing countries and countries where capitalism has relatively recent and shallow roots tend to suffer greater economic and political damage when crisis strikes--as, inevitably, it does. And, consequently, financial crises often reinforce rather than challenge the global distribution of power and wealth . This may be happening yet again. None of which means that we can just sit back and enjoy the recession. History may suggest that financial crises actually help capitalist great powers maintain their leads--but it has other, less reassuring messages as well. If financial crises have been a normal part of life during the 300-

year rise of the liberal capitalist system under the Anglophone powers, so has war. The wars of the League of Augsburg and the Spanish

Succession; the Seven Years War; the American Revolution; the Napoleonic Wars; the two World Wars; the cold war: The list of wars is almost as long as the list of financial crises. Bad economic times can breed wars . Europe was a pretty peaceful place in 1928, but the

Depression poisoned German public opinion and helped bring Adolf Hitler to power. If the current crisis turns into a depression, what rough beasts might start slouching toward Moscow, Karachi, Beijing, or New Delhi to be born? The United States may not, yet, decline, but, if we can't get the world economy back on track, we may still have to fight .

US econ collapse triggers global—interdependence on resources Lewis ’98 [Chris H. Lewis, Professor of American Studies at the University of Colorado-Boulder, 1998, in The Coming Age of Scarcity, Dobkowski and Wallimann, eds, pp. 55-56.]The successful collapse of global industrial civilization is, in part, dependent on the 80 percent not fully integrated with the global economy breaking free from their ties to modern industrial civilization . Faced with growing threats of economic and ecological collapse, many underdeveloped nations and regions should declare their independence from the global economy, recognizing that this economy is the larger cause of their poverty. After breaking free from the First World’s economic and political hegemony, underdeveloped countries can then use their resources and people to feed themselves and improve their quality of life. Of course, we have been witnessing such attempts for the past fifty years after World War II

as colonial and neocolonial struggles for independence. The wars in Vietnam, Cambodia, Afghanistan, Nicaragua, El Salvador, Angola, Mozambique, Somalia, and in the nations of the former Soviet Union were all struggles to win independence from foreign domination. The cold war was, in large part, a struggle between the United

States and the Soviet Union over who would dominate the modern world and the so-called nonaligned nations of the Third World. With the global instability created by the end of the cold war, the collapse of the Soviet Union, and the decline of American hegemony, underdeveloped countries may find that they have the strategic opportunity to demand their independence from First World domination . They can refuse to pay their debts, withdraw from the global industrial economy, nationalize foreign corporations that are exploiting their wealth, and create local and regional economies to support their own people .

But Third World independence from the First World-dominated global economy will not come without a heavy economic, political, and military price. With the withdrawal of underdeveloped countries from the global economy within the next thirty to fifty years, the developed countries will face continual material, ecological, and energy shortages that will force them to downscale their economies . The First World will, ironically, be forced to follow the lead of the Third World and create local and regional economies that are sustainable and self-sufficient. In many instances, nations will break up, forming smaller polities tied together by ethnic, religious, or social bonds. If these polities and nations take responsibility for helping their peoples survive the

hardship and suffering imposed by the devolution of the global industrial civilization and economy, they will be better able to reduce the real threat of mass death and genocide that will arise from the collapse of modern industrial civilization

Great Depression had catastrophic political ramifications- Modern day depression could have same effectKrugman, Nobel Prize Economics and Professor of Economics and Int. Affairs Princeton, 12[Paul, End This Depression Now, 2012, p. 15-17]AHL

The ultimate costs of the Great Depression went far beyond economic losses, or even the suffering associated

with mass unemployment. The Depression had catastrophic political effects as well. In particular, while modern conventional wisdom links the rise of Hitler to the German hyperinflation of 1923, what actually brought him to power was the German depression of the early 1930s, a depression that was even more severe than that in the rest of Europe, thanks to the deflationary policies of Chancellor Heinrich Brüning. Can anything like that happen today? There’s a well-established and justified stigma attached to invoking Nazi parallels (look up “Godwin’s law”), and it’s hard to see anything quite that bad happening in the twenty-first century. Yet it would be foolish to minimize the dangers a prolonged slump poses to democratic values and institutions. There has in fact been a clear rise in extremist politics across the Western world: radical anti-immigrant movements, radical nationalist movements, and, yes, authoritarian sentiments are all on the march. Indeed, one Western nation, Hungary, already seems well on its way toward reverting to an authoritarian regime reminiscent of those that spread across much of Europe in the 1930s. Nor is America immune. Can anyone deny that the Republican Party has become far more extreme over the past few years? And it has a reasonable chance of taking both Congress and the White House later this year, despite its radicalism, because extremism flourishes in an environment in which respectable voices offer no solutions as the population suffers.

Growth prevents wars

Economic growth is the key to preventing nuclear war, solves hard and soft powerMorgan 11, Morgan, Iwan professor of US Studies and director of the American Presidency Centre at the UCL-Institute of the Americas, previously Professor of US Studies at the Institute for the Study of the Americas, University of London; 2011 “The American Economy and America’s Global Power” http://www2.lse.ac.uk/IDEAS/publications/reports/pdf/SR009/morgan.pdf. Web. 05 July 2014. CSAmerica’s economic strength has long underwritten its leading role in world affairs . The ¶ buoyant tax revenues generated by economic growth fund its massive military spending, ¶ the foundation of its global hard power. America’s economic success is also fundamental to its ¶ soft power and the promotion of its

free-market values in the international economy. Finally, ¶ prosperity generally makes the American public more willing to support an expansive foreign ¶ policy on the world stage, whereas economic problems tend to engender

popular introspection. ¶ Ronald Reagan understood that a healthy economy was a prerequisite for American power ¶

when he became president amid conditions of runaway inflation and recession. As he put it ¶ in his memoirs, ‘In 1981, no problem the country faced was more serious than the economic ¶ crisis – not even the need to modernise our armed forces – because

without a recovery, we ¶ couldn’t afford to do the things necessary to make the country strong again or make a serious ¶ effort to reduce the dangers of nuclear war . Nor could America regain confidence in itself ¶ and stand

tall once again. Nothing was possible unless we made the economy sound again ’.¶ Today the United States has to deal with the impact of far worse economic problems than it did when ¶ Reagan became president. These include

the fallout from the most severe financial crisis since 1929 ¶ (the near-meltdown of the financial system in 2008), the worst

recession since the Great Depression ¶ (the so-called Great Recession of 2007-2009), a fragile recovery that could well falter into a doubledip recession in 2012, the blowback effects of a European debt crisis, and a future of unsustainable ¶

public debt without a correction of fiscal course. The current state of the American economy confirms ¶ the historical trend that downturns resulting from financial crisis (as in the 1870s, 1890s, and 1930s) ¶ are far more serious than other recessions. However, the debt overhang adds a new and very worrying ¶ dimension. Indeed America’s fiscal and economic weaknesses are interlinked because the revival of ¶ economic growth is the necessary first step in dealing with America’s public debt problem. To date, the ¶ woeful set of economic and fiscal indicators has not seriously diminished America’s global power, but ¶ it has had some effect and threatens to have much

greater – perhaps catastrophic – impact in time.

Environment

Economic decline disincentives green policies, voters care less about the environment Richard, 08 (Michael Graham, L.L.P, 10-10-2008 Law “4 Reasons Why Recession is BAD for the Environment”http://www.huffingtonpost.com/michael-graham-richard/4-reasons-why-recession-i_b_133564.html)

1) When squeezed companies will reduce their investments into research & development and green programs.

These are usually not short-term profit centers, so that is what's axed first. Some progress has been made in the past few years, it

would be sad to lose ground now. 2) Average people, when money is tight, will look for less expensive products (duh). Right

now, that usually means that greener products won't make it. Maybe someday if we start taxing "bads" instead of "goods" (pollution, carbon, toxins instead of labor, income, capital gains) the least expensive products will also be the greenest, but right now that's not the case. 3) There's less money going into the stocks markets and bank loans are harder to get, which means that many small firms and startups working on the breakthrough green technologies of tomorrow can have trouble getting funds or can even go bankrupt, especially if their clients or backers decide to make cuts. 4) During economic crises, voters want the government to appear to be doing something about the economy

(even if it's government that screwed things up in the first place). They'll accept all kinds of measures and laws, including those that aren't good for the environment. Massive corn subsidies anyone? Don't even think about progress on global warming...

Economic collapse turns the global environment – countries utilize methods to bounce back that are detrimental to the environment Biello , Editor for the Scientific American , 08 (David, Editor for the Scientific American. “Is a Global Recession Good for the Environment?” http://www.scientificamerican.com/podcast/episode.cfm?id=is-a-global-recession-good-for-the-08-11-132)

Times are tough when a millionaire oil man can't get a wind farm built. T. Boone Pickens backed off of his much ballyhooed mega-wind project in Texas this week, citing the declining cost of natural gas. Fossil fuel burning power plants are still too good of a deal to bother investing $2 billion into wind turbines. A bear market might seem like a boon for the environment: less

overall economic activity, like manufacturing and driving, means less overall pollution. Right? Actually, as the

Pickens example proves, global economic downturns take a toll on the environment by restrain economic activity that could improve the situation. But that's not all. Over-farming and drought led to 400,000 square kilometers of prime top soil blowing away in the wind in the 1930s, exacerbating, and exacerbated by, the Great Depression. And the economic crises that crippled the economies of southeast Asia in the 1990s also set in motion a rapid uptick in environmentally damaging pursuits such as illegal logging and cyanide

fishing, according to the World Bank. Even as I speak, economic worries have prompted some European countries to begin backpedaling on their commitments to cut back on global warming pollution. So an economic downturn is no friend of the environment. Brother, can you spare a turbine?

Budget cut hurts econBudget cuts now will hurt the economy- must wait until strong growth remains consistentDYLAN MATTHEWS April 18, 2013, Austerity may help growth during good times. But man, does it hurt during bad times, Washington Post, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/18/austerity-may-help-growth-during-good-times-but-man-does-it-hurt-during-bad-times/For questions about whether or not economic stimulus works, the key question, then, is what's the multiplier? It's pretty clear that it has been significantly positive in the U.S. and other developed countries since the downturn. The IMF, for instance, thought the multiplier in Europe was 0.5 before the crisis hit, but has since admitted it was wrong and that the multiplier was more like 1.5. So there isn't really much doubt about whether fiscal stimulus could be used to boost growth in the economic conditions of the past few years. According to most of the literature on the American Recovery and Reinvestment Act, the fiscal stimulus approach worked.

The corollary of that finding is that in the kind of weak economy that gives you a high multiplier, budget cuts and tax increases hurt growth in the short run. What's worse, they might even add to the debt burden.

Take the IMF's estimate of a multiplier of 1.5. That means that if you cut spending by 1 percent of GDP, the economy would shrink by 1.5 percent as well. And because the economy is shrinking by more than the debt burden is growing, the debt-to-GDP ratio would actually go up. Even if you think that high debt-to-GDP ratios cause slower growth, the answer may not be short-term austerity.

Tradeoff -> Structural Violence

Cuts hurt poor, elderly and sick

Government spending leads to budget cuts that hurt the poor, elderly, and sick; empirics proveLiberto ‘13(Spending cuts are hurting economy, By Jennifer Liberto , October 18, 2013: 7:38 AM ET, http://money.cnn.com/2013/10/18/news/economy/sequester-economy-shutdown/)If you thought this year's cuts to preschoolers, senior meals and medical research were bad, get ready for more. The two-week U.S. government shutdown may have ended and the U.S. didn't default on its debt. But the deal passed by Congress late Wednesday night allows the series of unforgiving budget cuts, also known as sequester, to continue through Jan. 15. That's not good for the economy. The nation has been operating on a shrunken budget, slashed by $80 billion in forced spending cuts since March 1. And already, the so-called sequester has dragged down economic growth, experts say. As government workers returned to work Thursday, Defense Secretary Chuck Hagel warned employees that the economic pain could continue for his agency, because "Congress did not end the budget uncertainty that has cast such a shadow ... over this Department for much of the year." The Bipartisan Policy Center too warned in a report this month that widespread economic pain is already beginning to kick in, as the money (or lack of it) is finally starting to pinch. The brunt of the cuts have fallen in areas like medical and science research funding and services that help the poor, sick and elderly. The sequester slashed 57,000 children this fall from the rolls of Head Start daycare and preschool programs, available for poor families nationwide. About two-thirds of Meals on Wheels programs had to reduce the number of meals they served, by an average of 364 meals per week, a survey found. The lack of government funds has also led to layoffs of hundreds of science and medical research jobs, according to a survey by the American Society for Biochemistry and Molecular Biology and 15 other scientific societies. The cuts have also undermined federal public defenders' ability to defend those accused of federal crimes -- a constitutional right for people who can't afford a lawyer. Furloughs have delayed many cases -- prompting U.S. District Judge Richard George Kopf in Nebraska to declare: "It is

time to tell Congress to go to hell." The Bipartisan Policy Center suggests that if the cuts continue, economic impact on the defense industry will be double in 2014 what it was in 2013. "The full brunt of the cuts hasn't hit, and if we go down the sequester path for too long, we won't be able to reverse the devastating impacts," according to the report. Congress' deal ended the 16-day partial government shutdown, raised the government's ability to borrow and funded the government at the current, curtailed levels through Jan. 15. The deal also directed Congress to appoint lawmakers to a conference committee to work out a budget deal for the rest of next year. That panel will decide whether sequester spending caps will continue past January. Back in March, $85 billion in forced spending cuts kicked in. Since then, Congress gave special free passes to some agencies and industries, trimming sequester to about $80 billion in cuts. But the bulk of the cuts remain in place. "We think if the sequester goes on for another four months, you'll have a substantial impact," said Steve Bell, a senior director at the Bipartisan Policy Center.

Social programs

Cuts on social programs severely impact impoverished familiesDaily World, ‘13(Editorial: Cuts to food stamp program hurt the poor, Daily World, October 9, 2013)Before the government shutdown stole the headlines, there was growing concern over a bill that passed the House of Representatives to cut $40 billion out of the food stamp program over the next 10 years.

After the shutdown ends, the attention will undoubtedly return to that issue, along with all the concerns. If this bill passes into law, it has the potential to harm millions of Americans who have been affected in recent years by unemployment and underemployment brought on by the recession, as well as those who have lived in chronic poverty. The casualties will include children, seniors and veterans. Of the nearly 48 million Americans receiving benefits from the Supplemental Nutrition Assistance Program, or SNAP, more commonly known as food stamps, 878,131 live in Louisiana. That's more than 19 percent of the state's 4.6 million residents, making Louisiana sixth in the nation for SNAP participation. More than 71,000 of Louisiana food stamp recipients would be affected, according to the Center on Budget and Policy Priorities, a liberal group. The House bill passed in late September, just as food banks were issuing appeals for donations to offset seasonal shortages. And yet, all of the Republican members of Louisiana's delegation in the House voted for the draconian cuts. The lone House Democrat, U.S. Rep. Cedric Richmond, D-2nd District, called the bill "disgraceful." U.S. Rep. James McGovern, D-Mass., called the bill "one of the most heartless bills" he has ever seen, according to a report in the New York Times. U.S. Rep. Charles Boustany, R-Lafayette, was quoted in an Associated Press story as saying, the bill "institutes critical reforms to enhance the fiscal stability of the program, while ensuring this population receives the proper assistance it needs." How will these two opposing goals be achieved, exactly? The bill would reverse or restrict many of the provisions of the SNAP program. It would not allow people enrolled in other social welfare programs from automatically being eligible for food stamps. This seems like a move that would increase red tape and paperwork. Some House Republicans tout the bill as a way to end fraud and abuse of the program. There is no doubt there are those receiving benefits who don't need or deserve them. But surely, there are ways to ferret them out and eject them without cut of this magnitude that will have the effect of massive collateral damage. Furthermore, it's unclear how an across-the-board cut will accomplish that goal. According to the Congressional Budget Office, about 4 million SNAP recipients would be removed from the program during the first year. Three million a year would fall out of the program each subsequent year, for an expected total of 14 million over the next 10 years, according to the New York Times. The bill's authors apparently assume the economy will pick up enough to help these 14 million people avoid hunger without the help of the food stamp program. But there is not guarantee that the end of the Great Recession is in sight, modest gains in recent months notwithstanding. That is a fragile expectation to gamble the well-being of 14 million men, women and children on. Since its creation, the food stamp program was funded as part of the nation's farm bill, which comes up for renewal every five years. This year, a fight over proposed cuts to the SNAP program bogged down passage of the farm bill, . In an unsuccessful effort to pass the farm bill before its Sept. 30 expiration date, the SNAP program was severed from the farm bill to be voted on as a separate issue. Some are hoping the two can be reunited and thus make its way as one bill through Congress in ways that will be acceptable to all involved. However it is accomplished, the food stamp program must be saved and continue to serve those who would otherwise live with hunger. The fight will move to the Senate next, where the bill is expected to be rejected. If it is not, a veto by President Obama is expected to follow. That appears to be the last, best hope for millions of Americans living in poverty.

AT: ResilientEconomy is not resilient---we’re losing competitiveness and that causes global catastropheKoba 11, Koba, Mark, Mark Koba is a senior editor at CNBC.com. Topics for his feature story writing include the business of politics, health care, employment and the economy.. "American Economic Decline? Exaggerated." CNBC.com. NBCUniversal News Group, 12 Sept. 2011. http://www.cnbc.com/id/44271677/American_Economic_Decline_Exaggerated Web. 05 July 2014. CSWith a recent ratings downgrade, chronic unemployment, a growing budget deficit and a political system that seems determined to self-destruct, it might appear that the U.S. is losing its grip as the world's top economic power . That's not to say that the U.S. shouldn't look over its shoulder. Many countries, specifically China, have long been gaining economic strength. "China has had high growth rates for over 30 years,"

says Frank Lavin, CEO of Export Now and a former U.S. ambassador to Singapore. "Their ability to sustain those rates combined with the softness in the U.S. economy gives rise to speculation that China will surpass the U.S and assume economic leadership on international issues." With China's GDP rate at around 8 percent to 11 percent a year, and the U.S. stuck at around 2 percent to 3 percent, it's easy to see why some say China's economy will be larger than the U.S. economy by 2016. China isn't the only growing economic force on the horizon, say experts. "The largest change over the last 10 to 15 years has been the growth of emerging markets," says Thomas Root, associate professor in finance at Drake University. "The BRIC countries capture the

headlines, but many smaller countries, like some in South America and Asia, are having an increase in production." "The E uropean Union and Germany in particular are the most formidable threats to the U.S.,"

Massey University's Haley adds. "They are big enough countries to be threats even as they struggle." America's battle to get its own economy growing at a faster pace opens the door for others, analysts point out.

"Perhaps the most damning evidence [of potential American decline] is the unemployment rate of around 9 percent," explains Adrian Cronje, a partner and Chief Investment Officer at Balentine, a worldwide investment firm. "The question is whether large segments of the U.S. workforce are sufficiently skilled and productive to compete and drive future economic growth." There's also the falling value of the dollar that could help knock the U.S. off its perch, Cronje argues. "The U.S. dollar is in danger of losing its status as a safe haven for investors," Cronje says. "I t's been in a long term bear market against hard assets like gold, and that decline reflects a decline in economic power." If the U.S. did lose its number one position, that would have global implications, according to Northeastern University's Dadkhah. "For the U.S., it would mean a lower standard of living and less power to influence international events," Dadkhah explains. "And America is the pole holding up the tent of

international finance. It the pole falls, we'd have a period of uncertainty and upheaval on a worldwide scale." But what currently ails the U.S. is also hitting the rest of the world, according to analysts. Nations that for now seem to be riding a faster economic track will have likely have troubles of their own, says Roger Scher,

professor of international political economy at Seton Hall University. "History has shown us that economic success stories turn sour," explains Scher. "Witness poorly growing Brazil and Peru, and Europe's bust in recent years. And watch out for China's potential property price bubble. It's huge and brings considerable political risk." As tempting as it may be to gloat

over other countries' economic declines, analysts say the U .S. has plenty of work to do in order to remain a viable leader. "We need long-term plans to cut the deficit and reduce entitlement and defense spending ," says

Seton Hall University's Scher. "At the same time, we need to invest in education and infrastructure, and cut tax loopholes." In the end, say analysts, the U.S. should ultimately focus on its own economy and leave the question of who's number one to history. "It's always trendy to speak about the decline of the U.S.," says

Sizemore Investment Letter's Sizemore. "I'm not sure it really matters that much. Other countries are beating us with faster growth, but they're starting at a lower base."

No resiliency – policy actions can’t stop collapse caused by a double-dipIsidore 11, Isadore, Chris Reporter for CNN MoneyWatch “Recession 2.0 would hurt worse,” 2011, http://money.cnn.com/2011/08/10/news/economy/double_dip_recession_economy/index.htm, Web. 05 July 2014. CSAnd while economists disagree on just how likely the U.S. economy is to fall into another downturn, they generally agree on one thing -- a new recession would be worse than the last and very difficult to pull out of. "Going back into recession now would

be scary, because we don't have the resources or the will to respond, and our initial starting point is such a point of

weakness," said Mark Zandi, chief economist at Moody's Analytics. "It won't feel like a new recession. It would likely feel like a depression." Zandi said the recent sell-off in stocks have caused him to raise the odds of a new recession to 33% from 25% only 10 days ago. Other economists surveyed by CNNMoney are also raising their recession risk estimates. The survey found an average chance of a new recession to be about 25%, up from a 15% chance only three months ago. Of the 21 economists who responded to the survey, six have joined Zandi in increasing their estimates in just the last few days. The main reason: the huge slide in stocks. Standard & Poor's downgrade of the U.S. credit rating is another concern. "The correction in equity markets raises the risk of recession due to the negative hit to wealth and confidence," said Sal Guatieri, senior economist for BMO Capital Markets. Even with a 430-point rebound in the Dow Jones industrial average Tuesday following the Federal Reserve meeting, major U.S. stock indexes have lost more than 11% of their value over the last 12 trading days. Recovery at risk A plunge in stocks doesn't necessarily mean a new recession. The economy avoided a recession after the stock market crash of 1987. "Stock price declines are often misleading indicators of future recessions," said David Berson, chief economist of BMI Group. But with the economy already so fragile, the shock of another stock market drop and resulting loss of wealth could be the tipping point. "It really does matter where the economy is when it gets hit by these shocks," said Zandi. "If we all pull back on spending, that's a prescription for a long, painful recession," he said. Most economists say they aren't worried that S&P's downgrade makes recession more likely, although a few said any bad news at this point increases the risk. "The downgrade has a psychological impact in terms of hurting consumer confidence," said Lawrence Yun, chief economist with the National Association of Realtors. On shakier ground Another recession could be even worse than the last one for a few reasons. For starters, the economy is more vulnerable than it was in 2007 when the Great Recession began. In fact, the economy

would enter the new recession much weaker than the start of any other downturn since the end of World War II. Unemployment

currently stands at 9.1%. In November 2007, the month before the start of the Great Recession, it was just 4.7%. And the large number of Americans who have stopped looking for work in the last few years has left the percentage of the population with a job at a 28-year low. Various parts of the economy also have yet to recover from the last recession and would be at serious risk of lasting damage

in a new downturn. Home values continue to lose ground and are projected to continue their fall. While manufacturing

has had a nice rebound in the last two years, industrial production is still 18% below pre-recession levels. There are nearly 900 banks on the FDIC's list of troubled institutions, the highest number since 1993. Only 76 banks were at risk as the Great Recession took

hold. But what has economists particularly worried is that the tools generally used to try to jumpstart an economy

teetering on the edge of recession aren't available this time around. "The reason we didn't go into a depression three years ago is the policy response by Congress and the Fed," said Dan Seiver, a finance professor at San Diego State University. "We won't see that this time." Three times between 2008 and 2010, Congress approved massive spending or temporary tax cuts to try to stimulate the economy. But fresh from the bruising debt ceiling battle and credit rating downgrade, and with elections looming, the federal government has shown little inclination to move in that direction. So this new recession would likely have virtually no policy effort to counteract it.

AFF

Uniqueness

Econ Down now

Economic growth is slow- US just experienced its worst quarter in the last 6 yearsNeil Irwin 6/25/2014, senior economics correspondent for The New York Times, Economy in First Quarter Was Worse Than Everybody Thought , New York Times, http://www.nytimes.com/2014/06/26/upshot/economy-in-first-quarter-was-a-lot-worse-than-everybody-thought.html?_r=0The beginning of the year was not just bad for the United States economy; it was — on paper at least — the

worst quarter since the last recession ended five years ago . The Commerce Department revised its estimates of first-quarter gross domestic product to show that overall economic activity contracted at a 2.9 percent annual rate, much bleaker than the previous estimate of a 1 percent decline. A combination of shrinking business inventories, terrible winter weather in much of the country and a surprise contraction in health care spending drove the first-quarter fall, which was the worst since the first quarter of 2009 , when the economy shrank at a 5.4 percent rate.

Economic growth will already be low this year- even increases the remainder of the year won’t be enoughNeil Irwin 6/25/2014, senior economics correspondent for The New York Times, Economy in First Quarter Was Worse Than Everybody Thought , New York Times, http://www.nytimes.com/2014/06/26/upshot/economy-in-first-quarter-was-a-lot-worse-than-everybody-thought.html?_r=0Still, though 2014 is only around halfway over, the brutal math of G.D.P. means that the nation now looks consigned to another year of sluggish growth at best — and that’s true even if there is a pickup over

the remainder of the year . For example, if the economy were to grow at a 4 percent pace each of the three final quarters of 2014 — a level only attained twice in the last five years, and never in consecutive quarters — the overall growth rate for 2014 would still work out to only a tepid 2.2 percent . “The economy now must attempt to dig itself out from an even larger hole than previously expected,” Lindsey M. Piegza, chief economist of Sterne Agee, said in a research

note. The sharp contraction was driven by an unlikely combination of negative forces that conspired to turn what had once seemed set to be another quarter of so-so growth into a considerably gloomier experience. Economists had expected the revised number to show a 1.8 percent annual rate of contraction, and were caught off-guard by the far more negative result. The key thing they missed: consumer spending, the mainstay of economic activity, was far weaker than either government numbers or private analysts had previously thought, particularly spending on health care.

The economy is structurally weak- strong growth is unlikely because of lack of investment and consumer spendingNeil Irwin 6/25/2014, senior economics correspondent for The New York Times, Economy in First Quarter Was Worse Than Everybody Thought , New York Times, http://www.nytimes.com/2014/06/26/upshot/economy-in-first-quarter-was-a-lot-worse-than-everybody-thought.html?_r=0Analysts expect the contribution of health care to the overall G.D.P. to be bumpy and unpredictable in the quarters ahead because of uncertainty about the law. “Looking forward, the volatility in the measurement of health care services represents a risk to our G.D.P. forecasts,” Doug Handler, chief United States economist at IHS Global Insight, wrote in a note. “Since this volatility is not business-cycle related, its impact should be heavily discounted in assessing the general health of the

economy.” Other causes of the first-quarter contraction were already well known. Businesses pulled back on their inventories, which subtracted 1.7 percentage points from growth (an earlier estimate had been a loss of 1.6 percentage points). The good news is that the negative inventory swing, if underlying demand stays solid, may encourage companies to rebuild their stocks of goods in the future. And the rough winter weather did not help many categories of business activity . It slowed home-building activity (residential investment subtracted 0.13 of a percentage point) and commercial building work (which subtracted 0.22 of a percentage point). But the fact that the economy as a whole could show such a sharply negative result thanks to a few idiosyncratic factors is also a reflection of the underlying weakness in the economy . When growth is strong, even some bad weather and an unexpected inventory swing do not cause a contraction in the economy, or at least not a contraction on the scale reported for the first quarter of 2014. But because the pattern of growth has been roughly in the 2 percent range or a bit below for years now, the economy is more vulnerable to shocks that leave activity in negative territory .

The US economy is in bad shape now and will continue- there is low investment and high inequalityMichael Kling Monday, 07 Jul 2014 09:48 AM, Stiglitz: US Economy Is Weak Despite Strong Stock Market, Money News, http://www.moneynews.com/Economy/Stiglitz-jobs-economy-stocks/2014/07/07/id/581113/The record-high stock market does not mean the economy is strong, according to top economist Joseph Stiglitz.

Quite the contrary. The economy remains weak, Stiglitz, a professor of economics at Columbia University, tells CNBC, predicting that a "North Atlantic malaise" will continue. The Dow Jones Industrial Average passed 17,000 last week, up 3 percent for the year and 14 percent higher than a year ago. News that the economy created 288,000 new jobs, pushing the unemployment rate from 6.3 percent to 6.1 percent, lifted stocks. Despite the good news, Stiglitz is not optimistic. "Remember, labor force participation is at very, very low levels, much lower than before the crisis . Real wage increases have been

very weak, well below what they should be if we were having a robust recovery ," he explains. "There are lots if indicators that suggest this is a weak recovery." Stiglitz says he is "very uncomfortable" with current valuations of

stocks. "The reason the stock market is high, in part, is that interest rates are low, wages are low and the emerging markets are still growing much faster than the U.S. economy, let alone Europe." Many large U.S.

corporations are getting much of their profits from emerging markets. "These very strong stock market prices are in a sense a symptom of the weak economy , not a symptom that we are about to have a strong recovery to our real economy," he adds. Growing income inequality is stifling the recovery, Stiglitz argues. "In the United States, from 2009 to 2012, 95 percent of the gains went to the upper 1 percent. Ordinary Americans are using up their savings," he notes.

Spending Inevitable

Government spending is inevitable- both parties spend big money, they just differ on what areasSTEVEN THOMMA McClatchy NewspapersMarch 5, 2009 , It only looks different: Both parties love big government, McClatchy DC, http://www.mcclatchydc.com/2009/03/05/63361/it-only-looks-different-both-parties.htmlStrip away the political finger pointing over President Obama's proposed budget and the fight boils down to a clash of values. Both major parties are really for big government — just big in different places.

Republicans say they're outraged that Obama would "borrow and spend" his way to a new behemoth government. But they borrowed and spent their way through the '80s and the current decade. And they love big government — when it's at the Pentagon. Democrats from Obama on down insist that they don't like big government, that they're just forced into a temporary

spending spree by the recession. But Democrats love big government as well, when it's for social programs such as

universal health care. "The basic difference between Democrats and Republicans in recent decades is which aspect of government spending they prefer," said Steven Schier, a political scientist at Carleton College in Northfield, Minn.

"With the Republicans, it's defense. With the Democrats, it's education, environment, health care etc. That's been the major difference between the two parties going back to Reagan."

All members of congress favor government spending- it’s inevitable, and only a matter of what money gets spent onSTEVEN THOMMA McClatchy NewspapersMarch 5, 2009 , It only looks different: Both parties love big government, McClatchy DC, http://www.mcclatchydc.com/2009/03/05/63361/it-only-looks-different-both-parties.htmlIn his eight years, Republican Ronald Reagan increased government spending by 69 percent, led by a 92 percent increase in defense spending as he built up the military to confront the Soviet Union. (These numbers aren't adjusted for inflation.) With the economy growing by the time he left office in 1989, the size of the government as a share of total economic production had shrunk slightly, from 22.2 percent to 21.2 percent. Democrat Bill Clinton increased government spending by 32 percent from 1993 to 2001, brought down largely by the rapid slowdown in defense spending after the Cold War ended. Defense spending grew by just 4 percent during the Clinton years. The combination of restrained growth in government and a booming economy meant that government's size as a percentage of the economy dropped from 21.4 percent to 18.5 percent in the Clinton years. George W. Bush boosted government spending by 68 percent in his eight-year presidency, spearheaded by a 126 percent increase for defense as he waged wars in Afghanistan and Iraq. Bush's spending totals don't include the $700 billion bank bailout added last fall to his final fiscal year, or the $787 billion stimulus package added early this year. By the time he left office, Bush's government had grown as a share of the economy from 18.5 percent to 22 percent. While he relies on optimistic assumptions about the economy, Obama forecasts that he'll raise spending this year and next, then ratchet it back until it again represents 22 percent of the economy at the end of his first term. In recent weeks, Republicans have unleashed a barrage of criticism against Obama as the bogeyman of big government. "Who among us would ask our children for a loan so we could spend money we do not have on things we do not need? That is precisely what the Democrats in Congress just did. It's irresponsible," said Louisiana Gov. Bobby Jindal, delivering the Republican rebuttal to Obama's speech to Congress earlier this month. "We simply cannot afford to mortgage our children and grandchildren's future to pay for this big government spending spree," said Rep. John Boehner, R-Ohio, the Republican leader in the House of Representatives. "The era of big government is back, and Democrats want you to pay for it." Still, Republicans in Congress today support big government when it's for the Pentagon, such as spending for the wars in Iraq and Afghanistan, or on weapons systems such as the F-22 Raptor fighter jet being developed by Lockheed Martin. Rep. Phil Gingrey, R-Ga., for example, argued recently for buying nearly 200 more of the F-22 Raptor jets, calling them critical to defend against China and Russia. "Moreover," he said, "over 100,000 jobs in our nation are directly or indirectly tied to this program." Spending priorities for members of Congress often depend on their districts.

I/L

Debt doesn’t hurt the economy

Short term increases in debt don’t effect the economyFoster 13, Foster, J.D. Expert Ph.d in economics and an writer for The Heritage Foundation"The Many Real Dangers of Soaring National Debt." The Heritage Foundation. The Heritage Foundation, 18 Jan. 2013. http://www.heritage.org/research/reports/2013/06/the-many-real-dangers-of-soaring-national-debt. Web. 05 July 2014. CSIn 2003, Thomas Laubach considered the effects of projected fiscal policies on longer-horizon interest rates.[8] This approach offers an advantage in that many factors affect interest rates, especially in the short run, so isolating the near-term effects of fiscal policy can be difficult. Often, however, these near-term effects are also transitory. Examples of temporary fiscal events include automatic fiscal policy stabilizers operating in a recession, or a temporary surge of spending as occurred after the terrorist attacks of 9/11 resulting in a surge in homeland security spending. Levels of government debt expected to prevail several years into the future are presumably unlikely to be significantly affected by such transitory fiscal events. Using official government forecasts of budget deficits and debt, and taking advantage of information embedded in the interest rate yield curve, Laubach examined whether a consistent relationship exists between government forecasts of future debt levels relative to gross domestic product (GDP) and future interest rates. The analysis revealed a statistically significant relationship: A one percentage point increase in the projected deficit-to-GDP ratio would be expected to raise long-term interest rates by between 24 and 40 basis points; and A one percentage point increase in the debt-to-GDP ratio would be expected to raise future interest rates by about four or five basis points.[9] To put this latter result into the current context, the debt-to-GDP ratio for the United States from 2000 to 2009 averaged just under 38 percent, and is projected to average nearly 73 percent from 2013 to 2023.[10] Laubach’s results thus suggest long-term interest rates will be between 1.4 percentage points and 1.8 percentage points higher than they would otherwise be because of the recent run-up in publicly held debt.

There is no way to predict how an increase in debt will affect the economyJohnson and Kwak 9, Johnson, Simon, Ph.d in economics from MIT and Professor of Entrepreneurship at the MIT Sloan School of Management[2] and a senior fellow at the Peterson Institute for International Economics. and James Kwak, Ph.d, and Harvard graduate Associate Professor of Law at the University of Connecticut School of Law. "National Debt For Beginners." NPR. NPR, 04 Feb. 2009. http://www.npr.org/templates/story/story.php?storyId=99927343. Web. 05 July 2014. CSThere are two plausible ways of resolving the argument over the sustainability of government debt, neither of which is conclusive. The first is empirical economic research. Here, the world's appointed authority is the International Monetary Fund, which is especially interested in analyzing debt sustainability because it is the institution that will be called in when government debts risk becoming unsustainable. The IMF has concentrated most of its attention on emerging-market countries, because it has been assumed both that developed countries are less likely to default, and that even if they did there is little the IMF, with its limited resources, could do about it. That said, the IMF has done extensive research on debt sustainability, including attempts to estimate the sustainable debt levels for specific countries. Abdul Abiad and Jonathan Ostry, two IMF economists, have a paper on "Primary Surpluses and Sustainable Debt Levels in Emerging Market Countries" (this is their research, not official IMF policy), which outlines two analytical approaches to estimating debt sustainability — one based on a country's past performance at paying off debt, the other based on a model of economic fundamentals. Applied to a sample of 15 emerging-market countries, both the historical approach and the model-driven approach put the median sustainable debt level at around 30 percent of GDP (although across the sample the estimates range from less than 10 percent to more than 100 percent). It would be a mistake to apply this single number to a country like the U.S., though. For one thing, developed countries in general can sustain higher levels of debt than emerging markets, among other reasons because they have higher revenue-to-GDP ratios. The IMF's September 2003 World Economic Outlook has some charts comparing government debt levels in industrial and emerging-market countries. Industrial countries in aggregate had public debt levels above 70 percent of GDP for most of the 1990s; yet no industrial country has defaulted on its debt in the post-World War II period. Empirical studies have shown at most a weak correlation between the amount of U.S. government debt and the interest rate the Treasury Department has to pay to borrow money. The other way to see how much debt is too much is to ask the market. If investors think there is a risk that they won't be paid back, they will demand a higher interest rate, for the same reason that subprime mortgages have higher rates than prime mortgages. Interest rates on U.S. Treasury bonds are at historic lows, because people looking for a safe place to put their money

are falling over themselves trying to lend to the U.S. government. The U.S. is able to borrow money cheaply despite

everything we know about the recession, the government deficit, the Obama stimulus package and the looming retirement savings problems. So the short answer to the question of how much debt is sustainable is simple: We don't know. If we were close to the edge of some fiscal cliff, the market would warn us, under ordinary

circumstances. But these are not ordinary times: Due to the upheaval in all markets, there is a level of demand for Treasuries that is . . . how shall we put this . . . probably not justified by economic fundamentals,

and as a result market signals don't work as well as they should. Right now, the markets are saying that the U.S. government is as good a place to lend money as any and are implicitly giving us time to sort out our fiscal problems. At what point that will change, though, no one can predict.

Debt doesn’t mean economic collapse – empirics proveJohnson and Kwak 9, Johnson, Simon, Ph.d in economics from MIT and Professor of Entrepreneurship at the MIT Sloan School of Management[2] and a senior fellow at the Peterson Institute for International Economics. and James Kwak, Ph.d, and Harvard graduate Associate Professor of Law at the University of Connecticut School of Law. "National Debt For Beginners." NPR. NPR, 04 Feb. 2009. http://www.npr.org/templates/story/story.php?storyId=99927343. Web. 05 July 2014. CSThe key issue is fiscal sustainability: the ability of a government to pay off its debt in the future, essentially by shifting its current obligations onto future taxpayers. (Again, borrowing money that your children will have to pay back is not necessarily a bad thing; it depends on whether you use it to improve the world they will live in.) Investors start getting worried when government debt looks like it will keep getting bigger (as a proportion of GDP), demographic trends look bad (with far more retirees than workers), and there seems to be no political appetite to confront the problem. If the debt gets too large, the government will eventually face a choice between several unpopular measures — including defaulting on the debt or imposing severe austerity in order to afford the debt payments . In the U.S., the last time fiscal sustainability was a major concern was the 1980s, when annual government deficits — the amount by which

spending exceeded tax revenues in a given year — reached a post-World War II high of more than 6 percent of GDP (data, p. 316). Deficits began falling in the mid-1980s, and especially after the end of the 1990-91 recession and the beginning of the Clinton administration, but total debt — the cumulative amount owed by the government — kept growing (because even small deficits still add to debt) until it peaked in 1996 at 67 percent of GDP (data, p. 126). Still, the

deficits that seemed so frightening in the 1980s were tamed by little more than a couple of moderate tax increases (by Presidents George H.W. Bush and Clinton) and the economic boom of the 1990s, to the point where the federal deficit faded as a political issue. And looking further back, even the World War II-related government debt — which reached 122 percent of GDP in 1946 — was paid down without much negative impact on the economy, thanks to strong demographic and productivity growth . In this decade, however, the 2001 recession, George W. Bush's two major tax cuts, the Iraq War, and of course the current recession have weakened the government's fiscal position. Now the Congressional Budget Office is projecting a 2009 deficit in excess of 8 percent of GDP, a new post-World War II high. That's before counting the Obama administration's stimulus plan. In addition, Social Security and Medicare are expected to face funding shortfalls totaling in the trillions of dollars, beginning next decade.

Debt doesn’t affect the economy – especially when you trade a short term increase in debt with a long term increase in income – the planBBC News 13, "How Bad Are US Debt Levels?" BBC News. British Broadcasting Corporation, 16 Oct. 2013. http://www.bbc.com/news/business-24541140. Web. 05 July 2014. CSTaken out of context, the numbers are staggering. The US has a total debt pile of almost $17 trillion (£10.6 trillion), which is

expected to rise to almost $23tn in the next five years. But how does that compare with other major economies? Japan is

not far behind, with current debts totalling $11.5tn. By any standards, these are big, big numbers. And these countries are not alone - almost every major global economy has debts of more than a trillion dollars, according to the International Monetary

Fund (IMF). Total government debt But context is needed - after all, debt is not necessarily a problem if you have the income to cover it. That is why the two most common measures used to gauge a nation's

indebtedness are: total debt, as expressed as a percentage of total economic output (GDP) budget deficit, the amount by which a government's expenses exceed its income, expressed as a percentage of GDP Some governments actually run a

surplus - in other words their income exceeds their expenses. Running a surplus is one of the best ways to reduce overall levels of debt. Looking at debt-to-GDP tells us that total US debt is roughly equivalent to its annual economic output. It is by far the largest economy in the world, and has the largest debt pile. Japan is the world's third largest economy, but its huge pile of debt is more than double its GDP. The only other country whose debts outstrip economic output is Italy, although a number of others come close - namely the UK, France and Canada. Even Germany, traditionally seen as fiscally responsible, has a debt-to-GDP ratio of more than 80%.

No impact to deficit spending – government budgets do not operate under the same constraints as a household and seldom result in inflationary pressures. Wray in 2011(L. Randall, Levy Economics Institute of Bard College and Professor of Economics at University of Missouri-Kansas City, “The dismal state of macroeconomics and the opportunity for a new beginning”, Working paper, Levy Economics Institute, No. 652)All of this could require more government spending (although it is possible that reducing spending in areas that do not generate jobs and that do not enhance US production and living standards would partially offset the additional spending). While orthodoxy fears budget deficits (with many arguing that they only “crowd-out” private spending), heterodox economists argue that orthodoxy conflates government budgets with household budgets. A sovereign government’s budget is not like the budget of a household or firm. Government issues the currency, while households and firms are users of that currency. As the

Chartalist or Modern Money approach explains, modern governments actually spend by crediting bank accounts (Bell

2000; Wray 1998). It really just amounts to a keystroke, pushing a key on a computer that generates an entry on someone’s

balance sheet. Government can never run out of these keystrokes. Remarkably, even the Chairman of the Fed, Ben Bernanke, testified to Congress that the Fed spends through simple keystrokes—hence could afford to buy as many assets as necessary to bail-out Wall Street’s banks. All that is necessary is to recognize that the Treasury spends the same way, and then Washington’s policymakers could stop worrying about “affordability” of the types of programs that everyone recognizes to be necessary: public infrastructure investment, “green” investments to reduce global warming, and job creation. To be sure, this is not a call for “the sky is the limit” spending by government. Too much spending will be inflationary and could cause currency depreciation. Government spending must be well-targeted and must not be too large. How big is too large? Once productive capacity is fully used and the labor force is fully employed, additional spending would be inflationary. This is also called the “functional finance” approach to policy, developed by Abba Lerner (1943, 1947). Policy should be directed to resolving problems, raising living 19 standards, and achieving the public purpose as defined by the democratic process. There should be no preconceived budgetary outcome—such as a balanced government budget over a year or over the cycle. In other words, the goal should be to use the government’s “purse” to achieve the public purpose—not to mandate any specific dollar amount for spending or for its deficit. This does not mean that government spending on programs should not be constrained by a budget—Congress needs to approve the budgets for individual programs, and then hold program administrators accountable for meeting the budgets. The purpose of budgeting is not to ensure that the overall federal government budget balances, but rather to reduce waste, graft, and corruption. Budgeting is one means of controlling projects to help ensure they serve the public interest. Unlike the case of a

household or firm, the sovereign government can always “afford” to spend more on a program—but that does not mean it should spend more than necessary.

No Trade off

GOP will cave- the Republicans want to end budget battlesDaniel Horowitz in 13, Emerging Ryan-Murray Deal: More Taxes to Fund Obamacare and Increased Spending, Red State, http://www.redstate.com/2013/12/09/emerging-ryan-murray-deal-more-taxes-to-fund-obamacare-and-increased-spending/After taking Obamacare off the table, despite the fact that it is demonstrably more of a political liability for Democrats than it was in October, Democrats moved in for the kill on the sequester. They figured that Republicans were so scared of a budget showdown, they’d give them anything they desire. Evidently, that even included items that Republicans already have in the big, such as the sequester. The sequester is already the law of the land, yet Paul Ryan has agreed to abolish the sequester for 2014 and 2015. At issue is

the scheduled sequester cuts for 2014 that will trim back discretionary budget authority from $1.027 trillion to $967 billion. The emerging deal will likely reinstate most of that spending for the next two years. Ryan and Murray plan to offset the spending with tax increases on airline tickets. Air travel is already very expensive because of the cost of fuel (thanks to our anti-energy policies). In addition to the expensive cost of air travel, passengers are already hit with taxes and fees that jack up the cost of air travel by 30% of the base cost. Do we really need more airfare taxes in order to fund Obamacare and undo the only spending cuts we’ve ever secured? The undercurrent of this agreement is the emergence of a dynamic that Republicans want to end all of the budget battles once and for all. That would explain their eagerness for a two-year repeal of the sequester. It also coincides with their decision to push off the debt ceiling indefinitely. Even though the debt ceiling law will be reinstated in February, the Treasury will be able to use “extraordinary measures” to delay the deadline until the summer.

Congress won’t make cuts because of new spending- they will keep pushing cuts backJeffrey Dorfman, 2/20/2014, Congress Relies On Budget Gimmicks To Fool Americans About Deficit Reduction, Forbes, http://www.forbes.com/sites/jeffreydorfman/2014/02/20/republicans-and-democrats-in-congress-agree-on-one-thing-americans-are-stupid/That’s right. In December, Congress paid for extra spending that will happen in the next eighteen months with savings to come over the decade. Then this week, Congress replaced those savings to come over the next ten years with an extra year of Medicare sequester cuts in 2023. So now the hypothetical savings do not begin at all for nearly a decade. Any guesses on the likelihood of those cuts staying in place long enough to actually be realized? This sort of accounting gimmick is a clear indication that Congress thinks the American people are stupid, or at least not smart enough to catch on to the games they are playing. Congress wants to spend money. The Democrats and Republicans disagree quite strongly over what to spend the money on, but almost all of our Representatives and Senators are in favor of spending lots of your money on something . The problem with all that spending is that it has to be paid for, either with taxes or borrowing (which means taxes in the future).

Because we are currently in an era when the American people are pressuring Congress to watch the deficit and be careful about all the spending, Congress wants to make it look like any new spending is “paid for” with some future spending cuts. This approach has only two problems, but they are both big ones. First, the future spending “cuts” are simply compared to some projection of current spending far off into the future, usually with big annual increases built in. Thus, in many cases, Congress claims to be cutting future spending when in reality the spending is actually increasing . They are only proposing to spend less than some imaginary (and very large) number that they wrote into a table at the back of a budget on some earlier date. That spending was never certain to happen, but now we are “cutting” it. Second, the future spending cuts almost never actually happen. The sequester was a very rare case of spending cuts occurring in Washington, D.C. and Congress never meant that to happen. Remember, the sequester was supposed to be a poison pill forcing Congress and the President to reach agreement on $1.2 trillion in imaginary spending cuts over the next decade. They failed, and we got the sequester cuts.

Deficits Good

Government deficits are necessary to stimulate private sector surpluses – government surpluses require an increase in private sector debt. Mitchell in 2013(William, Director of Centre of Full Employment and Equity and Professor of Economics at the Charles Darwin University, Australia, “Full employment abandoned: the triumph of ideology over evidence,” Centre for full employment and equity, working paper no. 02-13)The fiscal conservatism pursued during this period compounded the problems caused by deregulation. Consider the national accounting identity for the three sectoral balances: (S – I) ≡ (G – T) + (X – M) Thus total private domestic savings (S) is equal to private domestic investment (I) plus the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents. Thus, when an external deficit (X – M < 0) and public surplus (G – T < 0) coincide, there must be an overall private domestic deficit. While excessive private spending can persist for a time under these conditions using the net savings of the external sector, the increasingly indebtedness becomes unsustainable. The sectoral balances framework allows us to understand the interaction between fiscal policy and private sector indebtedness. In a modern monetary economy where the government issues its own currency, it follows as a matter of national accounting, that the sovereign government deficit (surplus)

equals the non-government surplus (deficit). The failure to recognise this relationship is the major oversight of neo-liberal analysis.

In aggregate, there can be no net savings of financial assets of the nongovernment sector without cumulative government deficit spending. Government (via deficits) is the only entity that can provide the non-government sector with net financial assets (net savings) and thereby simultaneously accommodate any net desire to save in the unit of account and hence eliminate unemployment . Additionally, and contrary to

neo-liberal rhetoric, the systematic pursuit of government budget surpluses is necessarily manifested as systematic declines in non-government sector savings. With an external deficit (current account) the only way that the

economy can continue to grow, if the government sector is running surpluses, is if the private domestic sector undertakes increasing levels of indebtedness. The deteriorating debt to income ratios that result will eventually see the system succumb to ongoing demand-draining fiscal drag through a slow-down in real activity

Even if in the abstract deficit spending is dangerous, we’re still in recovery and some levels of deficit spending are necessary to bring the economy to pre-recession levels. Krugman in 2013(Paul, Professor of economics at Princeton University, Nobel memorial prize in economic sciences recipient, “Dwindling Deficit Disorder,” Op-Ed column in the New York Times, March 10)Right now, a sustainable deficit would be around $460 billion. The actual deficit is bigger than that. But according to new estimates by the budget office, half of our current deficit reflects the effects of a still-depressed economy. The “cyclically adjusted” deficit — what the deficit would be if we were near full employment — is only about $423 billion, which puts it in the sustainable range; next year the budget office expects that number to fall to just $172 billion. And that’s why budget office projections show the nation’s debt position more or less stable over the next decade. So we do not, repeat do not, face any kind of deficit crisis either now or for years to come. There are, of course, longer-term fiscal issues: rising health costs and an aging

population will put the budget under growing pressure over the course of the 2020s. But I have yet to see any coherent explanation of why these longer-run concerns should determine budget policy right now . And as I said, given

the needs of the economy, the deficit is currently too small. Put it this way: Smart fiscal policy involves having the government spend when the private sector won’t, supporting the economy when it is weak and reducing debt only when it is strong. Yet the cyclically adjusted deficit as a share of G.D.P. is currently about what it was in 2006, at the height of the housing boom — and it is headed down. Yes, we’ll want to reduce deficits once the economy recovers, and there are gratifying signs that a

solid recovery is finally under way. But unemployment, especially long-term unemployment, is still unacceptably high. “The boom, not the slump, is the time for austerity,” John Maynard Keynes declared many years ago. He was right — all you have to do is look at Europe to see the disastrous effects of austerity on weak economies. And this is still nothing like a boom. Now, I’m aware that the facts about our dwindling deficit are unwelcome in many quarters. Fiscal fearmongering is a major industry inside the Beltway, especially among those looking for excuses to do what they really want, namely dismantle

Medicare, Medicaid and Social Security. People whose careers are heavily invested in the deficit-scold industry don’t want to let evidence undermine their scare tactics; as the deficit dwindles, we’re sure to encounter a blizzard of bogus numbers purporting to show that we’re still in some kind of fiscal crisis. But we aren’t. The deficit is indeed dwindling, and the case for making the deficit a central policy concern, which was never very strong given low borrowing costs and high unemployment, has now completely vanished.

Government deficits, by definition, increasing private sector wealth while austerity measures do the opposite. Harvey in 2012(John, Professor of Economics at Texas Christian University,”Why you should love government deficits,” Forbes, 7/18, http://www.forbes.com/sites/johntharvey/2012/07/18/why-you-should-love-government-deficits/)The calls for cutting the federal government’s budget and perhaps even balancing it have continued and are likely to grow louder during this election year. Don’t listen to them unless you want to see a fall in your net assets! Government deficits, by definition, create private sector wealth, while surpluses drain it. It’s simple accounting.¶ To understand this, start by imagining a world in which there is no government and no foreign countries. All economic activity in the US would take place domestically and be carried out by our private sector firms and households. As a group, they would earn what they spent. If all American firms and households spent $1000, then–because one of them was standing on the other side of the cash register for each of these transactions–American firms and households would earn $1000. It is logically impossible for them, as a group (though not as individuals), to spend more or less than what they earned–the values must be identical because it’s really double-entry bookkeeping. Every transaction that takes place is both spending (for the person buying something) and income (for the person selling something).¶ Now create a government. It is only at this point that it becomes possible for one sector (private or government) to spend more than they earned or earn more than they spent. For example, say over its first year in existence, the government takes in $100 in tax revenues but doesn’t spend any of it. You might have something like this:¶

Government Budget Surplus and Private Sector DeficitPrivate Government TotalIncome $1000 $100 $1100Spending $1100 $0 $1100Balance -$100 +$100 $0In this case, the private sector spent $1000 on the goods and services it created (which is what created the $1000 in income for them), plus they spent $100 for taxes. The government, meanwhile, earned $100 in income (via taxes), but spent nothing. The government budget is thus is surplus, while the private sector has gone into debt–by the exact same amount, of course. It is impossible for it to work out any other way. The balances must add to zero because, as the last column indicates, total spending must equal total income in a closed system. And with the government in surplus, the private sector goes into debt. On the other hand, look at what happens when the government spends in deficit:Government Budget Deficit and Private Sector SurplusPrivate Government TotalIncome $1100 $0 $1100Spending $1000 $100 $1100Balance +$100 -$100 $0Now it is the private sector that gets the surplus! In this scenario, the government has collected no taxes, but spent $100 on goods and services produced by the private sector. This creates enough income for the private sector for them to actually save money rather than go into debt. What the above means is this: government deficits create private sector wealth, while government surpluses drain it. There is no trickery here. When the federal government spends in deficit, it does so by putting financial assets, usually in the form of Treasury bills, in the hands of the public; when it spends in surplus, the net quantity of Treasury bills held by the public declines . Thus, federal government deficits not only create the extra demand necessary when the economy is at less than full employment (which is what I have argued many times in this blog; please see for example Why You Should Learn to Love the Deficit: Federal Budget Fallacies and The Horror Movie That Is Fiscal Responsibility) but it puts money in the bank, too. And the US could never be forced to default on the debt because it is denominated in dollars (see Who Should Really Be Downgraded, the USA or S&P?,

Downgrade Part II: More Evidence of the Ignorance of S&P, or Alan Greenspan). Furthermore, this is exceedingly unlikely to be inflationary under current conditions–indeed, it has not been (for more on what does and does not cause inflation, see here: Money Growth Does Not Cause Inflation and What Actually Causes Inflation). So, next time you hear Obama or Romney talking about reducing the deficit, be sure you put that into the proper context. They are talking about draining your savings account! That’s hardly a sound policy when we have over 12 million unemployed.

Deficit spending when the economy is in a slump directly raises GDP without crowding out private investment or confidence.Labonte in 2012(Marc, specialist in macroeconomic policy, “The sustainability of the federal budget deficit: market confidence and economic effects,” Congressional Research Service, December 14)Assuming that the government is able to continue to finance the deficit smoothly, do large deficits ¶ have any effect on the economy? When the economy is at full employment (meaning practically ¶ all labor and capital resources are in use), government budget deficits “crowd out,” or compete ¶ with, private investment spending in the standard macroeconomic model. Setting aside foreign ¶ capital flows for the moment, borrowing can only be financed through saving, and government ¶ borrowing competes with business borrowing for the same pool of national saving. By increasing ¶ the demands on that pool of national saving, government borrowing pushes up the cost of all ¶ borrowing through higher interest rates, causing businesses to finance less capital spending than ¶ they otherwise would.43 Business borrowing finances capital spending on plant and equipment, ¶ and lower capital spending results in lower potential gross domestic product, and hence lower ¶ future national income, than would otherwise occur. ¶ In the current context, the economy is not at or near full employment. In this context, government ¶ deficits are unlikely to significantly crowd out private business borrowing. On the contrary, ¶ business investment was contracting until the fourth quarter of 2009 and has remained low as a ¶ share of GDP since, either because investment demand declined or businesses are credit ¶ constrained . This greatly reduced the potential for large government deficits to crowd out private¶ investment spending . As discussed above, low interest rates support the view that the deficit is¶ currently causing little crowding out to occur. (Of course, this could change if investor concern¶ about sustainability pushed up interest rates.) In this case, the decline in aggregate spending¶ caused by falling investment spending can be offset, at least in part, by the rise in (deficitfinanced)¶ government spending, which directly increases GDP, and (deficit-financed) tax cuts,¶ which directly increase after-tax income. Most economic forecasters projected that the rise in the¶ budget deficit, on balance, increased GDP over the last few years, despite a possible crowding out¶ effect . Indeed, it is the increase in the deficit that is the primary reason that the stimulus act (P.L.¶ 111-5) was projected to stimulate the economy in standard macroeconomic models.44¶ With international capital mobility, borrowing can also be financed by foreign saving. In the¶ standard macroeconomic model with perfect capital mobility, the boost in aggregate spending¶ from the stimulus would cause the trade deficit to rise as foreign capital is attracted to higher¶ domestic interest rates. The availability of foreign credit would avoid the crowding out of¶ domestic capital investment. But the boost to aggregate spending from the budget deficit would¶ be negated (or “crowded out”) by the higher trade deficit. The United States relies heavily on¶ foreign borrowing, and this is another reason that large budget deficits could be less effective at¶ stimulating the economy. The lack of perfect capital mobility, and the large output gap at present,¶ in the United States means that a larger trade deficit is unlikely to completely negate the stimulus¶ as theory would suggest, but it is likely to make it less effective at boosting aggregate spending.¶ Since the recession began, the trade deficit has fallen substantially, so a problem of crowding out¶ from the trade deficit is not apparent at this time. It should also be noted that if capital spending is¶ financed by foreigners, the income generated by that capital will accrue to foreigners instead of to¶ Americans.¶ As the economy returns to full employment, large budget deficits will no longer stimulate¶ aggregate spending .45 At that point, crowding out will become a more serious concern if the¶ budget deficit is not reduced. By accounting identity, domestic investment must equal national¶ saving plus net borrowing from abroad.46 In the years before the crisis (2000 to 2007), domestic¶ investment averaged about 20% of GDP, as seen in Table 1. Because national saving averaged¶ about 15% of GDP, three-quarters of this investment was financed by national saving and onequarter¶ was financed by borrowing from abroad. The federal budget deficit modestly reduced¶ national saving during most of that period.47 In 2008, national saving fell to 12.6% of GDP, in¶ part because the budget deficit rose to 3.2% of GDP. Despite the fall in national saving that year,¶ net borrowing from abroad remained relatively steady because investment spending fell to 17.5%¶ of GDP.