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The Tea Partiers Are Dead-Set on Driving the Deficit Through the Roof and They Don't Even Know It

What the Tea Party caucus misses is that messing with the debt ceiling risks driving tax revenues down and the deficit up.

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Moody's chief economist Mark Zand told reporters that his forecast of continued, steady growth this year would be “blown out of the water.” “Even if Congress and the administration reverses themselves days later I think the damage will have been serious and we'll probably be thrown into a recession,” he said.

A second recession in three years and a third in the span of a decade. Another recession that would hit before the “Main Street” economy had rebounded from the last one, with families tapped out and swimming in debt. They'd be forced to pay higher interest on all manner of loans and that would lead them to pull back further on spending.

So, we'd be looking at another serious decrease in demand – in an economy fueled by consumer spending -- and with it yet more unemployment and more people missing their mortgage payments. More public sector workers would be laid off. The number of people in desperate need of public services in order to get by would increase dramatically just as the cuts hit. State governments would be squeezed very hard – harder than they have been already – leading to yet more cuts. It would be an utter disaster.

And, what the Tea Party caucus misses: tax revenues would decline, significantly, once again. So, we would get cuts – forced, painful cuts – which might be more than offset by tanking revenues, which in turn would drive the deficit even higher. It's the worst of all worlds.

Washington – both parties to varying degrees – has embraced a fundamental misunderstanding of the root cause of our economic woes. As long as we have an excess of unused capacity and a slump in private sector demand, cutting spending is fighting fire with gasoline. The only question that remains is, how badly the American economy is going to get burned.

 
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