Tags: IMF | us | Austerity | spending

Former IMF Economist Johnson: U.S. Should Embrace Austerity Early and Gradually

Thursday, 10 May 2012 07:43 AM

The U.S. should craft a plan to cut spending and trim deficits today, rolling it gradually and avoid the fate now plaguing Europe, says Simon Johnson, former chief economist for the International Monetary Fund.

Waiting until the last minute and then slamming the brakes on spending opens the floodgates for economic and political turmoil.

"Anytime you try to slam the brakes, it's going to be difficult. So why do it if you don't have to?" Johnson tells CNNMoney.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Bond markets aren't forcing the U.S. to slam on the brakes as they have in Europe, where yields are soaring in Spanish, Italian and other countries.

For now, the United States, unlike many eurozone countries, is not being pushed by markets to slam the brakes on spending.

That doesn't mean the U.S. should wait but rather, realize now is the perfect time to streamline the government.

"We shouldn't be complacent. Our fiscal adjustment can be more gradual, but you have to start now," Johnson says.

How gradual?

"Over 20 years would be fine. We don't have to do what Europeans are trying to do over a few years."

In Greece, the country's mainstream political parties failed to muster enough votes in recent parliamentary elections to form a coalition that would stick with austerity in exchange for bailout money.

The leftist Syriza party is now trying to form a government, and concerns are building the country won't have a government in place by June, when a bailout tranche is due to flow into the country's coffers, especially since

Syriza opposes austerity measures tied to receiving rescue funding.

Experts say Greece is falling deeper into crisis now that the country's main political parties, New Democracy and PASOK, are being pushed out.

"There was some hope that the lack of conclusion would galvanize parties in reorganizing and shaking things up but this isn't happening, which is disappointing," says Chris Williamson, chief economist at London-based research firm Markit, Reuters reports.

"There's an element of sticking heads in sand and more thought needs to go into where Greece is going and its ability to deal with deficit."

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.


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