The Fiscal Cliff and Government Spending

Analysis: Fiscal cliff could hit economy harder than many expect | Reuters.

The “fiscal cliff” is coming and there is little doubt something must be done to avoid the damage it may do to the economy.  But one important reality should be noted about how we get out of a recession: government spending plays a huge role and it can be utilized to get the economy moving again.  As noted in the article:

Many economists think every dollar of deficit reduction will subtract nearly the same amount from economic growth.

What to do? What to do?
What to do? What to do?

By that measure, the current course could cause the economy to contract by 0.5 percent in 2013, according to estimates by the Congressional Budget Office (CBO) that have been largely embraced by Wall Street and the U.S. Federal Reserve.

But research by economists in academia and at the International Monetary Fund suggests a dollar of deficit reduction could drain as much as $1.70 from the economy, making the prospective belt tightening much more dangerous.

Considering the economic facts of history, we know cuts to government spending, such as the type the Republicans in Congress and Mitt Romney are calling for, will impede the way out of our current economic downturn.  This would be downright devastating to an unemployment rate that is still progressing its way down to more healthy levels.  The truth is we need government spending and we have to bite the bullet on the current deficit levels it is creating until a more stable time comes where cutting areas of the budget are less damaging to the country.

And despite this reality, half of the voting public are still supporting the candidate most likely to cause even more economic devastation in our lives (with very little effect on his financial well-being and his wealthy supporters).  One must ask, how fiscally suicidal are we?

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