The document discusses four potential policy options to address the ongoing economic challenges: monetary policy, fiscal policy, regulatory policy changes, and waiting for the deleveraging process to run its course. Monetary policy could increase inflation to reduce debt burdens, but also carries risks of runaway inflation. Fiscal stimulus through spending and tax cuts could boost incomes, but impact may be delayed and increase deficits. Targeted debt relief programs could directly reduce household debt levels with less deficit impact compared to broad stimulus. Regulatory reforms may have limited short-term effect. Simply waiting risks prolonged high unemployment and possible deflation.
The statutory debt limit has been reached once again. There are better ways to enforce fiscal discipline without threatening default and its economic repercussions. This report presents ten ideas for improving the debt ceiling.
The statutory debt limit has been reached once again. There are better ways to enforce fiscal discipline without threatening default and its economic repercussions. This report presents ten ideas for improving the debt ceiling.
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Monetary policy is a set of tools that a nation's central bank has available to promote sustainable economic growth by controlling the overall supply of money that is available to the nation's banks, its consumers, and its businesses.
1. GLOBAL IMBALANCES1.1 Cheap But Flighty How Global Imbalanc.docxSONU61709
1. GLOBAL IMBALANCES
1.1 Cheap But Flighty: How Global Imbalances Create Financial Fragility
by Toni Ahnert and Enrico Perotti
Bank of Canada Working Paper 2015-33
https://www.bankofcanada.ca/wp-content/uploads/2015/08/wp2015-33.pdf
August 2015
How a wealth shift to emerging countries may lead to instability in developed countries. Investors exposed to expropriation risk are willing to pay a safety premium to invest in countries with good property rights. Domestic intermediaries compete for such cheap funding by carving out safe claims, which requires demandable debt. While foreign inflows allow countries to expand their domestic credit, risk-intolerant foreign investors withdraw even under minimal uncertainty. We show that more foreign funding causes larger and more frequent runs. Beyond some scale, even risk-tolerant domestic investors are induced to withdraw to avoid dilution. As excess liquidation causes social losses, a domestic planner may seek prudential measures on the scale of foreign inflows.
Topics to study:
· Investment / risk - relationship
· Global Imbalances
· Factors to attract foreign investment
· Safety-seeking foreign funding
1. An increasing scale of foreign funding may induce runs even by risk-tolerant investors since they seek to avoid dilution.
2. Result supports a mandate for introducing a macroprudential regulator to oversee the nature of foreign inflows because the socially preferred funding structure would involve less credit volume and more stability than the private choice.
3. Global imbalances shaped the credit boom and, ultimately, the financial crisis
4. The accumulation of wealth in countries with a weak protection of property rights creates a demand for absolute safety provided by intermediaries in developed countries.
5. The safety-seeking nature of foreign flows creates risk.
1.2 Global Imbalances and the Financial Crisis: Products of Common Causes
Maurice Obstfeld and Kenneth Rogoff
University of California, Berkeley, and Harvard University.
Federal Reserve Bank of San Francisco
https://scholar.harvard.edu/files/rogoff/files/global_imbalances_and_financial_crisis_0.pdf
November 2009
This paper makes a case that the global imbalances of the 2000s and the recent global financial crisis are intimately connected. Both have their origins in economic policies followed in a number of countries in the 2000s and in distortions that influenced the transmission of these policies through U.S. and ultimately through global financial markets. In the U.S., the interaction among the Fed’s monetary stance, global real interest rates, credit market distortions, and financial innovation created the toxic mix of conditions making the U.S. the epicenter of the global financial crisis. Outside the U.S., exchange rate and other economic policies followed by emerging markets such as China contributed to the United States’ ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble.
Topics to st ...
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2008 Global CrisisStarting in 2005, the Federal Reserve perc.docxdomenicacullison
2008 Global Crisis
Starting in 2005, the Federal Reserve perceived that its excessively broad financial strategy had made the potential for higher expansion. It properly started to fix arrangement through its standard technique of rising it’s focused on interest rate. A key initial phase in the money policy procedure includes the making of bank reserves; these are deposits that banks keep at the Fed. At whatever point anybody other than the Federal Reserve buys anything they have to have cash to pay for them. The Fed is diverse. It has the special capacity to pay for its purchases by informing banks that it has expanded their bank saves by whatever sum is important to pay for its purchases. https://youressaymarket.com/im-working-on-a-risk-management-case-study-and-need-support-to-help-me-study-sc/
Making more bank reserves has a tendency to give banks more money that empowers them to make credits and ventures. This procedure has a tendency to add to the cash supply, which inevitably expands the rate of expenditure. After some time, an increment in spending well beyond the capacity of an economy to create products and administrations prompts inflation.
From 2001 to 2005, there was an increment of bank reserves in the Federal Reserve by about 20%. In the same period, other measures of money such as monetary base and currency increased rapidly. This increase in funds led to an increase in the rate of spending that consequently led to the increase in the dollar GDP. This made the Federal Reserve to ease its monetary policy by reducing the bank reserves; this caused the indicators or measures of money to slow dramatically. This caused the dollar GPD to slow. The slowdown in growth of money decreased the rate of spending in the United States. The Federal Reserve continued to drain or remove the bank reserves from the system, and this fuelled the financial crisis.
Keynes, the famous economist, introduced what is commonly known as “financial stimulus.” The basics of financial stimulus is the people who have more disposable income will lend the money to the government, and the government will give it to those who do not have to boost spending. Many have argued that this is true and have not questioned its validity, while others argue that the stimulus is not huge enough to cause an economic downturn. Before the 2008 financial crisis, the United States was practicing this theory widely as postulated by Keynes. https://weassistessays.com/learning-outcomes-assessed-this-part-please-refer-to-learning-materials-for-co/
In reality, the financial stimulus policy is a drawback to the economy. For instance, in a year, the United States produces products worth $13 trillion, therefore they receive the same in income. The Population will save approximately 10% of this in order to purchase capital goods that will bolster future production. The government of the United States used to borrow this 10% meant for capital goods and pump it to the economy and most o.
ECON 301 Week 5 DiscussionsGroup 2 US Trade PolicySummaryFor.docxjack60216
ECON 301 Week 5 Discussions
Group 2 US Trade Policy
Summary
For our group project we have decided to research, analyze, and formulate an argument on the World Trade Organization (WTO) in regards to the US Trade Policy. In our paper we have discussed what WTO stands for and the goal of this organization. We have also addressed the latest form of trade negotiations among the WTO membership – Doha Development Round and the controversial topics of protectionism and free trade. Among the research we have performed, we as a group have come to a conclusion that we support this organization. Although there are incomplete developments that still need to be addressed, we continue to support this organization because of the fact that numerous nations come together in order to reform these conflicts.
Questions:
1. What makes free trade a better option than protectionism for the economic situation in the US?
2. What consequences would the WTO face if they acted unethically given their power?
Group 3 US Fiscal Policy
Fiscal Policy refers to the practice of monitoring spending levels and tax rates to try and influence our economy. Before the Great Depression, which started in the late twenties, our government had a hands off approach to the economy or a laissez-faire approach. After the Second World War it was deemed necessary for the government to become involved in our economy. (Heakal, Reem) They decided this would be necessary in order to attempt to influence unemployment, the business cycle and inflation. Of course there are many different ideas on the best approach and way to accomplish this.
The government takes initiative in trying to regulate unemployment, unemployment benefits, and taxation. They do this through the use of what is known as automatic stabilizers, which are programs and policies meant to balance fluctuations in the economy. During a recession, automatic stabilizers are expanded, and during an economic boom, the automatic stabilizers are reduced. An example of this would be unemployment benefits (David Weil). When there is a recession and unemployment is high, the government spends more money on unemployment benefits, whereas when the unemployment is low, the government spends less money on unemployment benefits. According to William J. Carrington, an analyst of the Congressional budget office, some of the fiscal policies used to reduce unemployment include household assistance (reducing employees’ taxes, increased unemployment insurance expenditures, and more refundable tax), business assistance, and financial aid to the states. Carrington also shows that to reduce unemployment, unemployment benefit policies must be modified such as an extension to the duration of benefits, reemployment bonuses, and offering wage insurance. Fiscal Policy can also be used to influence new ideas like those in alternative energies.
The United States government often tries to finds ways to stimulate the economy while looking towards its future. T ...
1PAGE 3CTW2David GijonGeorgia State University.docxeugeniadean34240
1
PAGE
3
CTW2
David Gijon
Georgia State University
7/21/2014
1. Monetary policies in the wake of the Financial Crisis of 2008
The initial response of the Federal Reserve Bank of America was in the form of cutting interest rates by 50 basis points. With the realization the financial hardship was still persistent across the nation, the Federal Open Committee moved in to reduce the (FFR) Federal Funds Rate, which originally stood at 5.25%. The new rate was now 2 percent. This reduction was carried out in the period between September 2007 and April 2008 (Thornton, 2010). Additionally, the basic lending rate was brought down to 25 basis points. This was also followed by the introduction of Term Auction Facility. At a significant level the Fed has historically contracted or expanded its balance sheet through its investing and lending activities. The effect of these monetary policies was to expand or contract
the monetary base as well as the supply of credit. Considering the banking system structure, as well as, the reserve requirements; changes in monetary base are aimed at altering the money supply. The effect on the supply of money is the manner in which the Fed influences the interest rates (Thornton, 2004). This brings about the liquidity effect
which is characterized by a high supply of money and reduced interest rates. Despite the fact that the demand for money may not be necessarily influenced by interest rates the lending and investing activities of the Fed affect the availability of credit. One instance where such monetary policy was used by the Fed is in the aftermath of the Lehman Bros collapse. In what was termed as quantitative easing 1, the Fed purchased securities backed by mortgages, agency debt and long term treasuries. This was followed by quantitative easing 2 QE2 whereby further long term treasuries were purchased (Joyce et al., 2010). These measures by the Fed were aimed at increasing aggregate demand through a reduction of long term yields.
Sadly the QEs did not achieve the desired long term yields as the Feds had anticipated. Generally, borrowing too did not pick up as had been anticipated in the increase of credit supply.
2. Fiscal policies after the financial melt down
The reasonable thing to do in the event of a financial crisis is to induce aggregate demand. There exists a disagreement on the manner in which aggregate demand can be expanded. Government spending is one of the commonly used fiscal policies: it is usually aimed at reversing the effects of recessions such as unemployment, loss of benefits, and decline in tax revenues, which stem from the decline in the economic activities. On the same note other discretionary measures such as tax rates reduction or tax holidays on businesses and households can be used to quicken the economic recovery. The government would also try to offer loans to states and firms as well as, grants and contracts for investment. These were the fiscal tools employed by the federa.
Foreign economics Policies-Euro Dollar Market, International liquidity, Devaluation, World debt crisis ,Development of under developed Countries, United nations Financial programs, Economic Union & communities
Similar to HPS The Path Forward - Policy Options (20)
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2. Executive
Summary
In the context of the deleveraging challenge we described in our last report,
there are a few high-level policy options that have been tried or could be
enacted in some combination to help short circuit this economic vicious circle:
• Monetary policy designed to elevate inflation above the Fed’s traditional
target would devalue debt (and savings) and deleverage households
faster.
• Fiscal stimulus in different forms (e.g., tax cuts, transfer payments, public
works projects) could raise incomes either directly or indirectly helping
the deleveraging process.
• Fiscal support for workouts for debtors in the form of things like
mortgage adjustments could likewise speed the deleveraging process.
• Policy shifts could incrementally improve growth prospects through such
changes as regulatory reform, tax reform or free trade agreements.
• If policy-makers believe the medicine is worse than the disease, it makes
sense to simply wait for the current deleveraging process to run its
course.
Without being directly prescriptive, we have tried to lay out in the following
pages an overview of these options and the pros and cons that come with each.
Hamilton Place Strategies | 1
3. Introduction
We are three years into an historic economic slump and no policy out of
Washington during that time has successfully addressed the full extent of the
problem. Whatever the impact has been (positive or negative) from the
extraordinary efforts of the Federal Reserve, the President’s stimulus, and
various other actions, it is undeniable to say that despite all the good-faith
efforts, our economic challenges continue.
This report is the second in a series of three intended to jumpstart a discussion
of the economic policy path forward in conjunction with the return of Congress
from summer recess, the President’s joint address to Congress on the economy
and the first meeting of the Joint Select Committee on Deficit Reduction.
In the first report, we worked to outline in a digestible form a view of the major
cause of our extended economic slump. In this report, we look at the major
policy choices that exist to address our current problems. In the final report, we
will outline a potential political path toward real action on the economy.
This report has been prepared independently by Hamilton Place Strategies with
the invaluable efforts of Ashley Smith and Russell Grote. No third party funded
this work and our conclusions are our own. The analysis here has been
conducted simply to further a public dialogue on the political and economic
choices facing the country.
Hamilton Place Strategies
Matt McDonald
Partner
Hamilton Place Strategies | 2
4. Policy
responses
Policymakers have three basic tools at their disposal to potentially spark
stronger growth: monetary expansion, fiscal stimulus, and policy changes, which
can be adopted in isolation or in concert. All three options address elements of
the crisis; however, each policy targets the economy in different ways and
carries different risks and uncertainties. Given these risks and uncertainties,
policymakers also have a fourth option. They can create policy certainty by
waiting for the slump and the deleveraging process to run its course. (See
Exhibit 1)
Exhibit!1 !
POLICYMAKERS HAVE FOUR POTENTIAL
COURSES OF ACTION TO TAKE !
Levers! Policy Tools! Pros and Cons!
Allow inflation through traditional or • Reduces debt burden through increase in
Monetary "
unconventional monetary policy measures nominal incomes and devaluation of debt!
Policy!
(e.g., price target)! • Lowers real interest rates, spurring investment!
• Risks run-away inflation!
Direct spending (e.g., public works project)! • Can have direct impact on incomes!
• Increases short-term deficits!
Fiscal " Tax cuts to increase personal income!
• Potential for spending to be wasteful, delayed or
Policy!
Subsidized workouts for debtors (e.g., distortionary!
home, student and/or auto loans)!
Approval of free trade deals! • Often positive and commonsense, but
Regulatory incremental changes!
Regulatory reform!
Policy! • Will have little short-term impact!
Other!
Freeze new policy – wait for the market to • Avoids market distortions, inflation, large deficits!
Wait!
deleverage! • Increases likelihood that extended cyclical
unemployment will become structural and
reduce future growth!
• Risks deflation!
Monetary
policy
The Federal Reserve can take both conventional and unconventional steps to
increase the money supply and inflation to aid the deleveraging process. The
Federal Reserve has already adopted traditional steps as the Fed Funds rate has
been close to zero since late 2008 and will remain low for two more years.
While these steps have reduced the concern for deflation, core inflation
(excluding energy and food) remains low. To raise inflation the Fed could adopt
more unconventional policies such as another round of quantitative easing, a
nominal gross domestic product target, a price level target, and a negative rate
of interest on reserves.
Hamilton Place Strategies | 3
5. These policies could boost inflation, which would directly address the issues of
household debt levels and reduced spending. Since debts are owed in fixed
nominal dollars, inflation could increase incomes relative to debt, easing debt
burdens for households. This process is often
called “inflating away the debt.” Moreover, inflation
Since debts are owed in increases the cost of holding money.
fixed nominal dollars, Consequently, an extended period of increased
inflation would incent cash holding institutions and
inflation could increase individuals to spend and invest. More specifically,
incomes relative to debt, negative interest on reserves would encourage
easing debt burdens for banks to convert excess balances into loans or
households. This process other productive assets.no federal deficit spending
inflation would require
An extended period of
is often called “inflating and could reduce the real federal debt burden.
away the debt.”
However, there are downsides and uncertainties.
Inflation eases debt burdens, but also erodes
savings punishing financially responsible individuals. Moreover, by raising all
consumer prices, inflation erodes the value of retirement savings. Beyond these
downsides, there are considerable uncertainties that make such policy difficult
to enact.
Exhibit!2 !
INFLATION AND PERSONAL INCOME!
CPI and Core CPI as percent change from previous year!
1 23 4 5!
8%! Major Fed Policy
Announcements!
6%! !
1. Fed pays interest on
4%! reserves, Oct 16, 2008!
!
2. Quantitative Easing,
2%!
November 24, 2008!
!
0%! 3. Zero Lower Bound
target, Dec 16, 2008!
-2%! Income growth has !
been flat over the 4. QEII, Nov 3, 2010!
-4%! previous year, even !
as price inflation 5. Fed ends QEII on
-6%! has accelerated! schedule, April 27, 2011!
Core CPI!
-8%!
CPI!
M !
Jun !
Se !
!
M !
Jun !
Se !
!
M !
Jun !
Se !
!
M !
Jun !
1!
7
08
8
08
8
09
9
09
9
10
0
10
0
11
-0
-0
-0
-0
-0
-1
-1
-1
ar-
p-
ar-
p-
ar-
p-
ar-
ec
ec
ec
ec
Per Capita Nominal
D
D
D
D
Personal Income!
Source: BEA, BLS data!
The Fed may not actually be able to control the level of inflation or even raise
inflation much at all without extraordinary measures, as the experience of the
Bank of Japan attests. Moreover, 3% inflation may seem innocuous, but price
Hamilton Place Strategies | 4
6. increases could be concentrated in certain sectors, or trigger commodity
hoarding. Over the past year, the growth rate of per capita personal income
has been flat. At the same time, we have seen spikes in inflation in places like
energy (price increase of 13% since QEII), which has been outpacing the rate of
income growth. Depending on where inflation appears, it can be detrimental to
the deleveraging process and recovery, as households have to commit more
disposable income to things like gas and have less free cash flow to reduce
debts.
The final and perhaps greatest danger is that the Fed risks losing its credibility if
inflation does take off. And in the long-run, a Fed without credibility will be less
able to stabilize the macro economy without a dramatic increase in interest
rates.
Fiscal
policy
Policymakers can also enact fiscal stimulus in several forms: direct spending by
the government (e.g., infrastructure projects), tax cuts to increase incomes, and
more targeted workouts that directly address debt levels.
Direct fiscal stimulus was passed in 2009 with
the American Reinvestment and Recovery Act … especially in the
(the Obama stimulus). The federal case of direct spending,
government borrowed money to finance tax
cuts, transfer payments to households and it is very difficult to
state governments, and direct spending. spend money in the
Government can provide income support to
households and make capital purchases (like a
short time frame it is
road construction contract) to create jobs, needed.
both of which help the deleveraging process.
There are two challenges with this approach. The first is that especially in the
case of direct spending, it is very difficult to spend money in the short time
frame it is needed. President Obama observed this himself when he quipped
that, “Shovel-ready was not as shovel-ready as we expected.” It never is. Think
about the early process that would go into proposed construction projects:
design, environmental review, public comment period, bidding, etc. It can easily
take months or years before a shovel hits the ground, depending on the
complexity and sensitivity of the project. The benefit of such projects is that
they can theoretically improve economic capacity in the future.
Tax cuts, by contrast, are usually felt more immediately in the economy, and can
change consumer or business behavior quickly, depending on the duration of
the cuts. One-off rebates, transfer payments, or time-limited tax cuts will have
less of an impact on behavior than durable change that fundamentally changes
the tax code.
Hamilton Place Strategies | 5
7. A challenge of fiscal stimulus is the increase in government deficits, causing two
distinct problems. First, increased federal debt could cause market concern.
Interest rates could increase, stifling investment and increasing the debt burden.
This concern has not yet been seen in the current environment. Second, a
deficit-financed tax cut may not encourage more investment, spending or
borrowing by individuals because any spending in the present will be paid for in
future taxes. Consequently, expectations of future tax increases could mute any
behavioral change. Again, this effect may be larger with short-term tax cuts that
will expire.
Beyond this, both tax cuts and direct spending also fall short in their lack of
targeting of those individuals who are actually severely overleveraged. Some of
the spending here will benefit people who do not need the help. More targeted
workouts for debtors could directly address debt burdens with comparatively
less impact on the federal deficit. Examples of this type of program would be
allowing those underwater in their homes to
refinance, creating payment plans for those who fall
More targeted behind on mortgage payments or allowing student
workouts for debtors loan debt to be refinanced.
could directly address
The Obama administration already established the
debt burdens with Home Affordable Modification Program (HAMP).
comparatively less HAMP provided creditors financial incentives to
impact on the federal reduce debt burdens on homeowners to avoid
foreclosure. Similar workouts for debtors could boost
deficit.
the housing market, which has remained stagnant.
Unfortunately, experience with HAMP shows the
difficulties in designing a successful mortgage debt workout.
The design of these types of programs can be difficult as many factors affect
creditors’ decision to foreclose or offer modifications. HAMP ‘nudged’ creditors
by offering them financial incentives to cut interest rates, extend loan periods,
and possibly reduce the principal of debt. However, the incentives provided
were simply not adequate to alter the overall decision of creditors. In some
circumstances, the reduction in payments was not enough to avoid default.
Unfortunately, HAMP was not the only program to fail. Since 2007, Congress,
the FDIC, the Federal Reserve and the GSE’s have all attempted loan
modification schemes. All efforts have been seen as unsuccessful. More
aggressively structured workouts could theoretically succeed but the design of
these programs is quite difficult, especially in light of concerns over “moral
hazard” and rewarding bad behavior.
In general, housing programs to date have focused on cash flow difficulties
without addressing the balance sheet problems. For example, the problem
facing a homeowner with a $300,000 mortgage on a home with a market value
of $150,000 – not an uncommon situation in the hardest hit metro areas – is
not the interest rate. It’s the fact that the debt burden is worth twice as much
Hamilton Place Strategies | 6
8. as the house. A preferred option to refinancing in this case may simply be a
debt forgiveness program.
As we look at the fiscal policy options available and the recent stimulus
proposal by the President, we see a comparative dependence on direct
spending and tax cuts. (See Exhibit 3) Of the three major policy tools that we
outlined above, major components of the package are simply an extension or
adjustment of current policy (i.e., the payroll tax cut, unemployment insurance),
rather than actual new stimulus. Additionally, the specific language on housing
debt workouts simply advocates making the current program work and figures
as a limited part of the package.
Exhibit!3 !
THE SECOND OBAMA STIMULUS RELIES ON
DIRECT SPENDING AND TAX CUTS!
Cost! Proposals! Challenges!
Direct $140B! • State subsidies for teachers and • It is unclear what states would otherwise do,
spending! first responders ($65B)! absent these federal funds!
• Infrastructure spending ($60B)! • Infrastructure spending comes with project
• School renovation ($30B)! planning processes that will likely delay the impact!
• Vacant property rehab ($15B)!
Tax cuts! $245B! • Extend the current employee • The payroll tax cut is actually a continuation of
payroll tax cut another year current policy, rather than “new” stimulus!
($175B)! • Employers make hiring decisions based on
• Cut employer payroll and other demand and cost of labor; a small one year drop
taxes ($70B)! in labor cost will have incremental impact on jobs!
Subsidized $0! • The proposal contained no new • This second stimulus largely ignores the most
workouts! initiatives to address housing or troubled sector of the economy, and poorly
indebtedness specifically! targets the current high levels of debt!
Other! $62B! • Unemployment insurance ($49B)! • Unemployment insurance can have the
• Tax incentives for hiring unintended consequence of lengthening the
unemployed ($8B)! period of unemployment by making people more
• Worker training ($5B)! selective in work!
The result is a package that may incrementally benefit the economy over the
coming year, but is not really targeted at the core problems that have made the
current economic slump so enduring. Like the previous stimulus, this one, if
passed, will likely help keep the economy afloat while the deleveraging process
runs its course. It does little to speed the deleveraging process itself.
Policy
changes
Structural reforms such as loosening of unnecessary regulation, free trade
agreements and revenue-neutral tax reform can also help combat our current
slump at the margins, and can help lay the basis for long term growth.
Regulatory reform could help cut needless red tape to improve the general
business environment. The completion of the free trade deals with South Korea,
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9. Panama and Colombia could spur efficiencies and economic growth. Tax
reform could help reduce the compliance burden for both businesses and
individuals and eliminate economic distortions that slow long-run growth..
These three would all have a positive impact on the economy, as would
hundreds of other incremental reforms like them. While these three measures
would increase growth in the long run, they have little immediate effect
compared to the scope of the problem we face.
Waiting
The three options discussed above are levers policymakers have to combat the
crisis. However, given the risks and uncertainties of the policies we have
outlined, waiting is also an option. Waiting for the stagnation to run its course
has a number of advantages. On the monetary side, inflation would be avoided.
Fiscally, the federal government would be less in debt. And on both sides,
market distortions would be avoided allowing for the market to reallocate
resources with less government involvement.
However, without policy action, the slump could A higher level of
extend for several years causing significant structural
suffering for American families. While economists
differentiate between structural and cyclical unemployment would
unemployment, long-term cyclical unemployment require increased
can become structural unemployment as government spending
workers lose skills, lose motivation and grow old.
A higher level of structural unemployment would and would reduce
require increased government spending and capacity for economic
would reduce capacity for economic growth in growth in the future.
the future. Deflationary effects could return as
well, aggravating the deleveraging process as
individuals wait for prices to fall to spend and invest.
Political
challenges
to
policy
In sum, given the unprecedented nature of the stagnation, all policy options
carry uncertainty and risk. However, possible action or even discussion over
what should be done to combat our economic malaise has been rendered
politically irrelevant in the face of gridlock over future expenditures and tax
revenues. Most near-term solutions to help the economy will cost money, and
given historically high levels of debt, there is little political appetite to increase
spending. Washington must find a long-term solution to the debt crisis in order
to open political space to act (or not act) in the short-run to address the
economic crisis. We will look at a potential political path forward in our last
report in this series.
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10. About
Hamilton
Place
Strategies
Hamilton Place Strategies is a policy and communications consulting firm based
in Washington. As a firm, our focus and expertise lie at the intersection of
government, business and media. Our deep experiences on all of these
dimensions allow us to serve industry leaders seeking to navigate the paths
between Washington and the private sector.
HPS works with clients on a host of challenges, from crisis management and
reputation building to policy analysis and business strategy. Our support includes
outside advisory, as well as transformational work to directly improve client
capabilities.
Our collective prior work entails decades of experience at the highest levels of
government, business and communications, including work in Congress, the
White House, the Office of Management and Budget, the Treasury
Department, the Financial Crisis Inquiry Commission, Presidential campaigns as
well as management consulting.
Hamilton Place Strategies
1501 M St NW, Suite 350
Washington, DC 20005
(202) 822-1205
www.hamiltonplacestrategies.com
Hamilton Place Strategies | 9