Smelling Salts for the Deficit Hysterics

The deficit hysterics have made the jump from stern warnings and finger-wagging to actual threats.

Susie Madrak at Crooks and Liars nails it.

Would that be Moody's, the same rating agency that certified big steaming piles of mortgage manure as Triple AAA-rated bonds and collapsed the international economy? I guess this means that Wall Street wants us to cut the deficit, huh. Well, I'd say what's good for Wall Street is bad for America:

The United States and other top world economies need to make potentially painful government spending cuts or risk losing the high-grade credit ratings that have kept borrowing affordable, the Moody's rating agency said Monday.

Here's the problem: cutting spending in a recession/depression is like bleeding somebody who's dying from blood loss.

This is self-evident to anyone who either lived through the 1930's or passed basic macroeconomics, but because neither history nor reality has much currency among the deficit hysterics, here are some smart, sharp, simple explanations:

Economist James Galbraith in defense of deficits:

For this reason, the deficit phobia of Wall Street, the press, some economists and practically all politicians is one of the deepest dangers that we face. It's not just the old and the sick who are threatened; we all are. To cut current deficits without first rebuilding the economic engine of the private credit system is a sure path to stagnation, to a double-dip recession--even to a second Great Depression. To focus obsessively on cutting future deficits is also a path that will obstruct, not assist, what we need to do to re-establish strong growth and high employment.

Read the whole thing.

Economist Dean Baker on the fake deficit crisis:

The country faces a serious crisis in the form of a manufactured crisis over the budget deficit. This is a crisis because concerns over the size of the budget deficit are preventing the government from taking the steps needed to reduce the unemployment rate. This creates the absurd situation where we have millions of people who are unemployed, not because of their own lack of skills or unwillingness to work, but because people like Alan Greenspan and Ben Bernanke mismanaged the economy.

Read the whole thing.

Cutting spending in the name of deficits now - instead of pouring a couple of trillion into massive jobs programs to build new infrastructure - is the bank telling you that carrying a mortgage is bad for your financial health, so you either have to pay it off right now or sell your house and live on the street.

Because living on the street is so much less expensive than paying a mortgage on a house.