The Times is being stubborn today.
I have spent the last two days sleeping.
Paul Krugman is feeling depressed for good reason:
"October 10, 2013, 10:56 am 41 Comments
Automatic Destabilizers
The debt ceiling situation remains
extremely foggy. Republican leaders seem, slowly, to be coming to the
realization that Obama is serious about this business of not engaging in
hostage negotiations — but they’re still trying to bargain (kill your
main achievement? No? OK, how about killing Social Security instead?).
Will they realize that this just isn’t going to work before the money
runs out? Nobody knows.
And nobody knows what comes next. The immediate question is whether Treasury can, in fact, “prioritize” — pay interest on the debt while stiffing everyone else, from vendors to Social Security recipients. If they can, they might choose to do this to avoid financial meltdown.
But as I and many others have emphasized, even if this is possible, it would be a catastrophe, because the Federal government would be forced into huge spending cuts (Social Security checks and Medicare payments would surely take a hit, because there isn’t that much else). We’re looking at something like 4 percent of GDP, which given fairly standard multipliers would imply an eventual contraction by 6 percent.
Except that standard multipliers are wrong — it would be much, much worse. I haven’t seen anyone making this point, but it’s very important.
Standard estimates of the effects of cuts in government spending take into account the role of the federal government as an automatic stabilizer: the deficit rises as the economy shrinks, mainly because tax receipts go down but also because safety-net spending goes up. Typical estimates are that the federal deficit rises around 40 cents for every dollar decline in GDP:
But if the federal government is up against the debt ceiling, it will
have to offset these revenue declines and automatic spending increases
with further cuts. So the initial 6 percent decline in GDP would force a
further 2.4 percent of GDP in cuts, leading to another round of GDP
decline, and so on.
Take these effects into account, and the multiplier effect of an initial decline in government spending should be around 2.5, not 1.5. So we could be looking at a 10 percent decline in GDP, and a 5 point rise in unemployment, even if interest is paid in full.
This wouldn’t happen all at once; it won’t happen if the debt ceiling crisis lasts only a few weeks, in part because many of the people being stiffed would still expect payment eventually. But a sustained debt crisis could have immense negative effects even if default on securities (as opposed to default on contracts, which would still happen en masse) is avoided."
In 2010 the U.S.A. consumed 19,150,000 barrels / day
Wishful thinking is dominant in this review of the world oil business.
Peak oil is real.
The price of production is rising toward one hundred dollars a barrel from
three dollars a barrel in 1970.
And nobody knows what comes next. The immediate question is whether Treasury can, in fact, “prioritize” — pay interest on the debt while stiffing everyone else, from vendors to Social Security recipients. If they can, they might choose to do this to avoid financial meltdown.
But as I and many others have emphasized, even if this is possible, it would be a catastrophe, because the Federal government would be forced into huge spending cuts (Social Security checks and Medicare payments would surely take a hit, because there isn’t that much else). We’re looking at something like 4 percent of GDP, which given fairly standard multipliers would imply an eventual contraction by 6 percent.
Except that standard multipliers are wrong — it would be much, much worse. I haven’t seen anyone making this point, but it’s very important.
Standard estimates of the effects of cuts in government spending take into account the role of the federal government as an automatic stabilizer: the deficit rises as the economy shrinks, mainly because tax receipts go down but also because safety-net spending goes up. Typical estimates are that the federal deficit rises around 40 cents for every dollar decline in GDP:
Take these effects into account, and the multiplier effect of an initial decline in government spending should be around 2.5, not 1.5. So we could be looking at a 10 percent decline in GDP, and a 5 point rise in unemployment, even if interest is paid in full.
This wouldn’t happen all at once; it won’t happen if the debt ceiling crisis lasts only a few weeks, in part because many of the people being stiffed would still expect payment eventually. But a sustained debt crisis could have immense negative effects even if default on securities (as opposed to default on contracts, which would still happen en masse) is avoided."
Oil Shocks Ahead? Probably Not
American consumers are using less gasoline, and despite upheaval in the Middle East and elsewhere, domestic oil production and other sources should ease supply issues for now.In 2010 the U.S.A. consumed 19,150,000 barrels / day
Wishful thinking is dominant in this review of the world oil business.
Peak oil is real.
The price of production is rising toward one hundred dollars a barrel from
three dollars a barrel in 1970.
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