Unfortunately, FRED had been furloughed. FRED is a beloved acronym for Federal Reserve Economic Database. It is a well-spring of data of all things economic. Sociologists love FRED. Economists love FRED. We are all sad to see FRED go. FRED’s database is no longer being updated because of the government shutdown. So there will be very limited ways for Economists or Sociologists to gauge how things are going in this mess.
Which brings me to an article by Martin Wolf in the Irish Times about options that the government could use during the next phase of our apocalypse – the Debt Ceiling. At least I could pull up the GDP historical data to try and make a larger point on Wolf’s article.
Wolf makes the claim that in order to avoid utter catastrophe if Congress failed to raise the debt ceiling, the Government has 3 options to prevent a global crisis:
1) Mint a Trillion Dollar coin. This has been floated around in the past, and is generally seen as a bad idea. Debt is like Einstein’s theory of energy; it never really goes away, it only gets transformed. Minting a coin only moves the debt from one balance sheet to another.
2) The 14th Amendment. The President could simply tell Congress “tough” and raise the debt ceiling anyway in order to pay the debt. Wolf brings up the great point that it would create a Constitutional crisis, and markets hate unstable governments.
3) Cut spending by 20%, or 4% of GDP to stay under the ceiling. Those are Wolf’s numbers. However, the CBO has said that the number would need to be more like 32%, or 6% of GDP.
So the interesting expansion that I have is this: if we had had a historically “normal” recovery after 2009, then we could take a 4% hit on GDP without too much pain. A 6% hit would have stung a little more. But at our current 1%, ANY hit on GDP is going to be catastrophic. Hits on GDP directly effect Unemployment levels.
And that’s just the United States. Trade would freeze, whether the U.S. defaulted on its debt or just cut spending by 32%. Every country in the world would be effected based on their level of trade, regardless of who they traded with.