The Obama administration and the Federal Reserve are making a mess out of the economy now, says Harvard historian Niall Ferguson.
A U.S. fiscal disaster is imminent, unless things change soon, he said.
“Monetary policy is where things are going most badly wrong,” he told Yahoo’s TechTicker.
The Fed made a mistake in stopping its quantitative easing program, which added liquidity to the financial system by expanding the central bank’s balance sheet.
“The big issue is the monetary contraction going on in the U.S. since the Fed stopped its quantitative easing,” Ferguson said.
“Compared with last year, I’m much more concerned about deflation now,” he said. Consumer prices dipped 0.2 percent in May.
Ferguson’s worried about the budget deficit too.
“How long can the U.S. go on borrowing on the scale it currently is — deficits on the order of 10 percent of GDP and more than $1 trillion year after year.”
The Obama administration forecasts a deficit of $1.6 trillion for this year.
“Somebody in Washington needs to come up with a credible plan to put the U.S. back on road to fiscal stability,” Ferguson said.
Higher taxes on business aren’t the answer, he says. Rather the focus should be on cutting waste in the public sector, such as pensions.
In contrast to Ferguson, Nobel laureate economist Paul Krugman favors more fiscal stimulus.
“We really are at a stage where we should have a kitchen-sink strategy. We should be throwing everything we can get at this,” he told Bloomberg.
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