President Barack Obama formally ordered broad cuts in government spending on Friday night after he and congressional Republicans failed to reach a deal to avert automatic reductions that could dampen economic growth and curb military readiness.
As the United States staggered into another fiscal crisis, the White House predicted that the spending cuts triggered by the inability of Obama and lawmakers to forge a broader deficit-reduction agreement would be “deeply destructive” to the nation’s economic and national security.
“Not everyone will feel the pain of these cuts right away. The pain, though, will be real. Beginning this week, many middle-class families will have their lives disrupted in significant ways,” Obama told journalists after his meeting with Republican and Democratic congressional leaders.
Peter Schiff: Obama Won’t Finish his Second Term Without the Bottom Dropping Out.
Instead, we should probably look to Japan where the economy has remained depressed and weak for the past twenty years, and where government debt has through cycles of stimulus and austerity replaced the private deleveraging. Perhaps Japan is an extreme example, and perhaps its demographic woes have prolonged its malaise. Perhaps that means that once the United States private debt level shrinks to a more sustainable level, the United States will enjoy solid new growth, rather than continued depression. Perhaps a new technological or energy revolution will result in falling energy and transport costs, providing America with a new growth engine for the next twenty years. Perhaps we can look at the low interest rate environment as an opportunity to invest in transport infrastructure, energy infrastructure and basic research and create a backbone for the post-depressionary economy. On the other hand, perhaps a new crisis — and one that won’t go away just by throwing money at it, like a natural disaster, or a war — will suck America into an even deeper depression.
I am more optimistic than I was five years ago, or even one year ago. I can see a light at the end of the tunnel, but is still possible that this crisis may end in war or total systemic failure.
In the long run, the data is clear. The Greenspan-Bernanke era Federal Reserve wilfully built up bubbles and distortions, which grew out of control, and sucked the economy into a black hole. At the very best, this has led to a Japanese-style depression.