Tags: Krugman | US | Cuts | dwarf | Greek | Austerity

Krugman: US May Face Cuts That ‘Dwarf’ Greek Austerity

Friday, 01 Jul 2011 01:37 PM

Economist Paul Krugman says that failure to raise the debt ceiling is quite possible.

"Many commentators remain complacent about the debt ceiling; the very gravity of the consequences if the ceiling isn't raised, they say, ensures that in the end politicians will do what must be done," Krugman writes in The New York Times.

"But this complacency misses two important facts about the situation: the extremism of the modern GOP, and the urgent need for President Obama to draw a line in the sand against further extortion."

Failure to raise the debt limit, Krugman says, would disrupt payments on existing debt and could convince investors that the United States is no longer a serious, responsible country.

krugman200.jpg
Paul Krugman
(Getty Images photo)
“Furthermore, nobody knows what a U.S. default would do to the world financial system, which is built on the presumption that U.S. government debt is the ultimate safe asset,” says Krugman.

“Failure to raise the debt limit would also force the U.S. government to make drastic, immediate spending cuts, on a scale that would dwarf the austerity currently being imposed on Greece” because slashing spending at a time when the economy is deeply depressed would destroy hundreds of thousands and quite possibly millions of jobs.

“Mr. Obama must be prepared to face those consequences if he wants his presidency to survive,” Krugman says.

USA Today reports that debt ceiling negotiations are being complicated by the possibility that Treasury Secretary Timothy Geithner will soon leave the Obama administration.

Geithner himself, at a conference organized by former President Bill Clinton, said, "I live for this work, it's the only work I've done, and I believe in it.”

“I'm going to be doing it for the foreseeable future."

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Economist Paul Krugman says that failure to raise the debt ceiling is quite possible. Many commentators remain complacent about the debt ceiling; the very gravity of the consequences if the ceiling isn't raised, they say, ensures that in the end politicians will do what...
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Friday, 01 Jul 2011 01:37 PM
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