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Ben Bernanke: Reports Overstate Damage From GOP Spending Cuts

3 years ago
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Federal Reserve Chairman Ben Bernanke waded into a heated Washington debate Tuesday when he predicted that federal spending cuts proposed by House Republicans would not damage economic growth to the extent that two recent reports have predicted.

House Republicans voted in February to slash $61 billion from the 2011 federal budget. Since then, Democratic leaders in both chambers have circulated two reports -- one from Goldman Sachs and one from Moody's -- that say such spending reductions would significantly damage the U.S. economy.

The Moody's report, from economist Mark Zandi, predicted that the GOP budget proposal would cause the economy to lose as many as 700,000 jobs, while Goldman Sachs predicted the cuts would slow GDP growth by as much as 2 percent in the second and third quarters of 2011.

Sen. Chuck Schumer (D-N.Y.) said in a statement last week that the House cuts are "a recipe for a double-dip recession" and said the Goldman Sachs report in particular put "a dagger through the heart of their 'cut-and-grow' fantasy."

On Monday, House Majority Leader Eric Cantor dismissed the Moody's report entirely: "I would note that Mr. Zandi was a chief proponent of the Obama/Reid/Pelosi stimulus bill that we know has failed to deliver on the promise of making sure unemployment did not rise above 8 percent."

But speaking with senators on Capitol Hill Tuesday, Bernanke took issue with the reports and their predictions of dire consequences if the Republican proposal were to pass the Senate.

"A $60 billion cut obviously would be contractionary to some extent, but our analysis does not get a number quite that high," Bernanke said of the job losses predicted by Moody's and the economic damage predicted by Goldman Sachs. "I have to say we get smaller impact than that." Instead, Bernanke said that the cuts would likely slow economic growth by "several tenths" of a percent and that the lost jobs would be "much less than 700,000."

Although Republicans may feel vindicated by Bernanke's remarks, he did add that the proposed GOP cuts would not grow the economy in the short term.

"It would of course have the effect of reducing growth on the margins certainly," he said. "It would have a negative impact, but 2 percent? I'd like to see their analysis. It seems like a somewhat big number relative to the size of the cut."

The Fed chairman later stressed that the long-term spending trajectory of the United States is "not sustainable" and urged lawmakers to make a long-term commitment to cutting federal spending over a number of years.
Filed Under: The Capitolist

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copperkettle3

Cutting $60 billion from the budget is just a drop in the bucket. Bernanke knows that the cut is minimal at best, especially considering that his QE2 can allow $600 billion back into the economy for an economic stimulus that circumvents our government process. This whole mess is not a spending problem but now is a revenue problem due to the reduced tax base from the economic downturn and the reduction in income taxes from the high unemployment. So the bankers that caused this mess get the bailouts and those on Main Street who are effected get their benefits reduced. The elite are bailed out on the backs of the middle class.

March 02 2011 at 10:16 PM Report abuse +1 rate up rate down Reply
John Vilvens

Goldman Sachs, is that one of the companies that got Obama money? Liberal think tank think conservatives are wrong, what a suprise that is. Tax and spend liberals think cutting spending is bad. No one could have seen any of these views coming. First it was republicans want to cut but did not say where they would cut. Now that they say where they will cut they are the demons trying to kill jobs. Obama budget was a joke, democrats have no answers but want to demonize the republicans for trying to take set to correct the problems. Obama and democrats if you cannot lead stay out of the way of people that will.

March 02 2011 at 12:13 PM Report abuse +2 rate up rate down Reply
Mark

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March 02 2011 at 9:04 AM Report abuse +2 rate up rate down Reply
djh6721

Job killing this and job killing that. Wasn't that the mantra of the GOP BEFORE they got elected? Now the only thing they can come up with is Job Killing proposals. Yes folks nothing will aid the economy recover like another 1/2 million hitting the unemployment line. I am reminded of the story of the frog and the scorpion. Once the frog agreed to carry the frog across the stream on his back the scorpion stung the frog. The frog asked as he lay dyimg "how could you after I helped you." The Scropion replied " you knew what I was when you picked me up." That's the GOP, no crying when you are making minumum wage and have no health benefits. You knew WHAT they were before you pulled the red handle.

March 01 2011 at 9:39 PM Report abuse -2 rate up rate down Reply
chipper

Bernys fishing for a pay raise. These people don't have a clue about anything. They don't care that we all are about to be screwed. They are all trying to look good.

March 01 2011 at 8:04 PM Report abuse +2 rate up rate down Reply
Gary Michael

Every well has a bottom and a limit to how much can be taken out of it. It is just common sense, the spending is totally out of control. We are paying for the bills of illegal immigrants, does anyone know what the word illegal means, it should mean no rights in this country. No rights to anything that hard working people work for and should not have to subsidize anyone here illegally.

March 01 2011 at 8:01 PM Report abuse +8 rate up rate down Reply
ettu

"It would of course have the effect of reducing growth on the margins certainly," he said. "It would have a negative impact, but 2 percent? I'd like to see their analysis. It seems like a somewhat big number relative to the size of the cut."

The Fed chairman later stressed that the long-term spending trajectory of the United States is "not sustainable" and urged lawmakers to make a long-term commitment to cutting federal spending over a number of years...........Bernanke is walking a fine line here, and obviously does not want to come right out and say the Libs/Dems are all wet.......but we know they are.

March 01 2011 at 7:52 PM Report abuse +6 rate up rate down Reply
ettu

"one from Goldman Sachs"............when did they become the people to listen to? Weren't they one of the very, very, bad guys, who not too long ago had to take a seat below the salt?

March 01 2011 at 7:49 PM Report abuse +6 rate up rate down Reply

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