Goldman research note from Jan Hatzius.
One strange quote from the note: "Partly for this reason, we expect the drag from fiscal policy on real GDP growth to decline sharply from around 2% of GDP in 2013 to around 0.5% in coming years."
Thursday, April 11, 2013
Bill McBride — Jan Haztius: "The Rapidly Shrinking Federal Deficit"
Goldman research note from Jan Hatzius.
One strange quote from the note: "Partly for this reason, we expect the drag from fiscal policy on real GDP growth to decline sharply from around 2% of GDP in 2013 to around 0.5% in coming years."
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13 comments:
Maybe he means there will be fewer discretionary cuts to fiscal spending because of the automatic cyclical decline. So the current projections that include big deficit cuts are overblown and won't ever take effect? I don't know. Nowhere else I've read Haztius, did he believe in the expansionary austerity fairy.
Tom, Did Mosler retire or something? His posts seem less frequent and sort of grabbing at straws rather than master of the macro trend. It isn't like him. Could hardly blame him for taking a break.
I don't know, but I suspect that Warren both decided to kick back a bit and put in his MMT hours elsewhere. The blog was obviously eating up a lot of his time since he read the comments and responded to most addressed to him. I think that people got used to that and were surprised and disappointed when it went away.
Fiscal policy is a drag right now because it is aimed at reducing government borrowing by raising additional revenues from households, which in turn compels consumers to curtail their borrowing and spending. This also results in a decline in business spending. All drag.
Now, I tend to agree with Hatzius that fiscal policy is currently a drag, but I'm not at all convinced that the impact of the drag will soften as we move forward. If growth in total personal and business credit, debt and incomes decelerate, so will GDP. If this happens, we'll see the deficit widen once more.
Thanks, circuit. That sounds right.
If you look at the Admin's proposed budget here:
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/tables.pdf
Page 189
You can see the projections as the going in position of the Admin...
Annual projection for FY 2014 of $3778.
Divided by twelve months equals $314 per month... in 2014.
Under our current "austerity", for the first 8 business days of April, govt has injected $171B or $21B per day.
If this keeps up for the month, over 20 business days that would be over $400B for the month.
Or an annual rate of 4800B.
So if they really do cut this down to the $314B monthly (I have my doubts), this would represent about a 20-25% cut from the $400B levels of spending that we have experienced over the last 3 months of Feb/Mar/April where we have seen the decent equity rally and some not horrible GDP projections for Q1.
I think if they really do remove this almost $100B/month from current levels for real we go back to red GDP numbers...
rsp,
Ryan Harris is right. The sentence before the one Tom reads is:
"In our view, the most important implication from the reduction in the budget deficit for the near-term economic outlook is reduced pressure for further fiscal retrenchment."
So Hatzius is anticipating that the falling deficit will have a political effect and result in fewer spending cuts and tax increases than they were anticipating earlier.
"1. Lower spending. On a 12-month average basis, federal outlays have fallen by a total of 4% in the past two years, the first decline in nominal dollar terms over a comparable period since..."
I'm going to check that....
FY 2012 Net Withdrawals: $4180
FY 2011 Net Withdrawals: $4326
3.3% Drop from 11 to 12...
6 month point in 2013: $2167 ($4334 annual implied) so back up this year...
But the Admin's budget submission is only for $3778 for 2014... yikes!
rsp,
Mosler did recently post a very good analysis of the Thatcher era.
Check it out: http://moslereconomics.com/2013/04/10/my-story-of-the-thatcher-era/
I am not convinced that ANY mainstream Wall Street economist is fully on board with MMT and that includes Hatzius. He may very well have meant what it appears he meant: that a falling deficit will be less of a drag on GDP.
Speaking from experience, it's IMPOSSIBLE to achieve or maintain a high level professional position on Wall Street if your coming from an MMT perspective. Impossible. Sorry.
"I think if they really do remove this almost $100B/month from current levels for real we go back to red GDP numbers..."
Matt - Very crisp analysis! Thanx!
right Mike,
Jan would otherwise be disagreeing with Lloyd.... not good if you want to "get ahead"....
rsp,
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