Obama adviser: Spending cuts would hurt economic recovery

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WASHINGTON — The head of the White House Council of Economic Advisers played down fears Tuesday about a projected $1.5 trillion federal budget deficit in 2011 and dismissed concerns that rising U.S. debt is making investors wary of U.S. bonds.

In a question and answer session at the Aspen Institute, a nonpartisan think tank, White House chief economic adviser Austan Goolsbee also said that the administration's fiscal 2012 budget to be released Monday will reduce deficits aggressively over several years.

"The most the deficit has even been cut in one year, I think, is a little over $100 billion. Obama's going to cut the deficit far more in individual years than has ever been cut," he said.

Addressing concerns that deficits may lead investors to demand higher interest rates for buying U.S. bonds, Goolsbee called that fear unwarranted and warned that deep cuts in government spending could sink a recovery just entering Phase Two.

"In my view, the market could not be saying more clearly that they don't have a problem with the federal government borrowing right now," Goolsbee said. "If they did, long rates (interest rates on long-maturing bonds) should be rising."

Cutting federal spending sharply now would be like saying, "'Well let's pull the rug out from under the recovery,'" Goolsbee said.

He said this year's deficit is a short-term result from the recent crash in the business cycle. That shouldn't be confused, he said, with projected long-term deficits rooted in the impending retirement of the Baby Boom generation and federal promises to pay their Social Security and Medicare costs.

The priority now should be to spur economic growth to relieve short-term deficits, he said.

Goolsbee, a former University of Chicago professor, took particular aim at House Budget Committee Chairman Rep. Paul Ryan, R-Wis., who delivered the Republican response during recent the State of the Union address.

"If the language is always about government is out of control and we need to cut spending, and the polling suggests that people don't consider Social Security and Medicare to be spending, it will be hard to get out of that box, it seems to me," Goolsbee said.

However, President Barack Obama never endorsed the solutions to the long-term problems outlined by his own bipartisan commission on deficits and debt. And Goolsbee said there isn't bipartisan support in Congress for those proposals.

Read more: http://www.mcclatchy...l#ixzz1DSyEtICQ

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Economic illiteracy at its finest when thinking that Government spending/continued spending into a debt oblivious is a good thing...

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Economic illiteracy at its finest when thinking that Government spending/continued spending into a debt oblivious is a good thing...

John Maynard Keynes was no dummy.

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"In my view, the market could not be saying more clearly that they don't have a problem with the federal government borrowing right now," Goolsbee said. "If they did, long rates (interest rates on long-maturing bonds) should be rising."

And indeed, they have been steadily rising: