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Economist Robert Brusca: Country Needs More from Congress, Less from Fed

By    |   Friday, 20 July 2012 01:35 PM

The country needs for its congressmen to ditch their ideologies, work to solve worsening fiscal woes and give the Federal Reserve a break from stimulating the economy, said Robert Brusca, chief economist at FAO Economics.

So far, the Fed has taken the lead to get the economy moving again.

The measures the Fed has taken have included cuts to benchmark lending rates to near 0 percent to encourage investment and hiring, bond buybacks from banks that pump the economy full of liquidity and also push down borrowing costs — a powerful tool known as quantitative easing (QE) — and a reshuffling of its Treasury holdings by stocking up on longer-dated securities and selling shorter-dated ones to further push rates down, a tool known as Operation Twist.

Rates are low enough, and now it’s time for Congress to act by agreeing on ways to make long-term fiscal reforms.

“I don’t believe in leprechauns, I don’t believe in Santa Claus and I don’t believe in QE," Brusca told Newsmax.TV in an exclusive interview. "I don’t think QE does much for the economy. I think QE is something the Fed does to sort of give us the illusion that it’s helping us along,” Brusca said.

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True fiscal reform should include making politically tough decisions to change tax and spending policies.

Not easy decisions, especially in an election year and because of the one-two punch that will hit the economy at the end of the year, when tax breaks expire and automatic cuts to spending kick in, a combination known as the "fiscal cliff."

The fiscal cliff could siphon $500 billion out of the economy next year alone and $7 trillion over a decade, according to some estimates, sending the economy back into recession in 2013 if left unchecked.

The problem is Congress must deal with the fiscal cliff, as well as fiscal imbalances that have been plaguing the economy for a long time, and brinkmanship often gets in the way of decision making and progress.

“They all know what we have to do and none of them are really willing to come halfway down the aisle. They all seem to be stuck in their ideologies, and I don’t think these ideologies work. I think what we need is compromise, I think what we need is a little bit of everything,” Brusca stated.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

“I think we do need to cut the fiscal deficits out in the future. I think we probably need a little bit more spending near term for stimulus. We need both,” he added.

Turning to taxes, President Barack Obama’s calls to let the Bush tax cuts expire for households bringing in $250,000 or more are misguided and counterproductive.

Such policy fuels class warfare and division in society. Furthermore, $250,000 is not all that rich in some areas of the country.

“If you live in New York City, if you live in middle-class housing, you’re looking at a two-bedroom apartment in a decent neighborhood. You’re paying $4,000 a month. You’ve got to pay $60,000 a year — that’s in after-tax income with no tax breaks — just to have a place to live,” Brusca said. “People say we are rich in New York. You need to make a lot of money to be a middle-class person.

“I think the president looks foolish when he does things like this. I don’t think that income is where you ought to be aiming this. I think we have tax laws. I think if you want to take away some of the deductions I think that that makes sense, that there are people who aren’t paying their fair share,” he added.

Fiscal reform means embracing the reality that while cuts to spending may need to wait until the economy heals, tax hikes may be needed for everyone when the time comes, and not for the rich alone.

“You have to really look at the difference between people who are middle class and people who are rich. And unfortunately, there aren’t enough people who are really rich to balance the budget on them,” Brusca said.

“The sad fact is that if you really are going to balance the budget, you’ve got to raise taxes on the middle class because it’s sort of a bell curve and the people in the middle — that’s where all the money is,” he added.

“Most of the taxes are paid by rich people, and that’s why when they take tax breaks, they save so much in taxes. Because they pay so much in taxes,” Brusca stated. “So that’s the irony of the tax picture. And I don’t like class warfare and I think the president is wrong to do this.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Friday, 20 July 2012 01:35 PM
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