James Saft is a Reuters columnist. The opinions expressed are his own.
While it may well be a case of cut the U.S. budget or suffer a bond crisis, the current debate begs a question: who will pick up the slack in the economy and who exactly will finance them?
Democrats and Republicans raced, in a plodding sort of way, on Wednesday to reach a compromise budget deal that would keep the government operating past a Friday deadline.
Regardless of what may be wise, the likelihood is that there are going to be further substantial cuts in government expenditure, though this won’t begin in earnest until after the 2012 elections.
That is when the fun is going to start.
It is a simple fact that every dollar less in government expenditure is a dollar less received by the private sector.
Households in the U.S., being already in a sort of adrenal failure, are in no shape to expand spending and borrowing when the government contracts. Even the most extreme monetary policy over the past three years has only managed to bring on a tepid resumption in consumer spending, and, given the state of the housing market and the depressing path of wages, families beneath the top 10 percent are simply not going to go on a spree.