GDP is about to get decimated…..
A confidential new report prepared by Goldman Sachs for its clients says spending cuts passed by the House of Representatives last week would be a drag on the economy, cutting economic growth by about two percent of GDP.
“Under the House passed spending bill [which cut spending by $61 billion],” says the report, which was obtained by ABC News, “the drag on GDP growth from federal fiscal policy would increase by 1.5pp to 2pp in Q2 and Q3 compared with current law.”
What have I been saying? That the only thing keeping us from recognizing a full-on economic depression was government deficit spending? Spending that, at present levels, cannot possibly continue.
Worse, there’s no way out of the box. Raise taxes and you subtract directly from private spending. Refuse to raise taxes and you are forced to continue to borrow.
Extrapolate out the $1.7 trillion from calendar 2010 and removing that would result in a decrease of twenty-eight times Goldman’s estimate, or some fifty percent of GDP.
Were you sitting down when you read that?
Did you have an incontinent moment?
If you didn’t then you don’t believe Goldman’s confidential report.
If you do believe it you now know what’s going to happen.
Not might, will.
One way or another, the artificial support to GDP that is embedded in our insane deficit spending will stop. It mathematically must stop. And when it does stop, if you believe Goldman’s analysis, even if we only cut deficit spending in half GDP will fall by 25%.
If we eliminate it? GDP is halved.
Thank you Mr. Phillips for validating what I’ve been saying for four years – what we’re doing can’t work forever, and our choices are to either accept the damage voluntarily (and it will be large) or take a catastrophic hit to our economy when we are forced to accept reality by circumstances beyond our direct control.