Tags: us | fiscal | stimulus | reversal

U.S Fiscal, Monetary Stimulus Set for Reversal

By    |   Friday, 11 Jun 2010 10:02 AM


The Federal Reserve cut the federal funds rate to a record low of near zero in 2008 and expanded its balance sheet big-time to keep credit markets afloat.

Congress then passed a $787 billion fiscal stimulus package.

But all the stimulus pushed the budget deficit to $1.4 trillion, or 9.9 percent of GDP, in 2009. That ratio is expected to rise to 10.3 percent this year.

Members of Congress, even Democrats, have turned to an anti-deficit stance.

“The failure of this Congress to even produce a budget, let alone get spending under control, is doing direct harm to our economy,” Rep. Dave Camp, R-Mich., told The New York Times.

The Senate is now working on a $115 billion package of spending and tax cut measures already approved by the House.

The White House is waiting for advice from the president’s commission on debt reduction, which conveniently reports after the November elections, to unveil deficit reduction measures, The Times reports.

The United States ultimately will have to impose austerity just like Europe, Timothy Scala, a strategist at Sophis Investments, told CNBC.com.

"We can't kick this can along the road forever," he said, referring to the U.S. debt burden. "If we continue to stimulate, it's going to make it worse."

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The Federal Reserve cut the federal funds rate to a record low of near zero in 2008 and expanded its balance sheet big-time to keep credit markets afloat. Congress then passed a $787 billion fiscal stimulus package. But all the stimulus pushed the budget deficit to $1.4...
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2010-02-11
Friday, 11 Jun 2010 10:02 AM
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