Question by Pete S: Will private market gains from cutting federal spending grow faster than losses from the cuts?
So cutting federal spending in effect lays off federal employees and private market employees who work on corporate contacts that are federally funded. Which means they stop having a paycheck to spend while they look for new work. But if that allows us to cut taxes, then everybody who still has a job keeps more of their paychecks and increase their consumption, creating more jobs. If the damage from the newly unemployed grows faster than the benefits of lower taxes, we lose. Elsewise it is a wining situation. Which way do you think the seesaw tilts, towards gain or loss?
Answer by NAK
if the federal government cut spending in the US, everyone will suffer mainly because there is very little manufacturing industry. First the country will have to bring back the private sector by lowering taxes (been there already) or add large tariffs on imports to prevent companies outsourcing the labor. This is a consumer nation and a large military equipment producer. The only way to create jobs is to create war and continue deficit spending at all costs. If the deficit spending is eliminated, there will be massive deflation. The Fed is doing all it can to prevent it but eventually they will fail. There is too much supply of everything except the necessities (food). Deflation is the main reason everyone will suffer. Either that or a currency crisis if the Fed launches a 100 trillion dollar QE program.
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