Citigroup's Chief Economist Willem Buiter on Bernanke's QE2 Gamble...
Don't believe it for a minute. Republicans have no plans to cut spending. It's a tournament of Washington lies.
Video: (Bloomberg) -- Howard Davies, chairman of the London School of Economics, and Willem Buiter, chief economist at Citigroup Inc., talk about the potential impact of additional quantitative easing by the Federal Reserve - With Tom Keene on Bloomberg TV.
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Fiscal austerity measures detailed today by the U.K. government will soon be needed in the U.S., according to Willem Buiter, Citigroup Inc.’s chief economist.
Britain’s deepest budget cuts ever, outlined by Chancellor of the Exchequer George Osborne, will eliminate almost 500,000 public-sector jobs and impose a levy on banks. The moves are part of a plan to reduce the 156 billion-pound ($245 billion) deficit, which is forecast to be 10.1 percent of gross domestic product this year, to 2.1 percent in the 2014-15 fiscal year.
“The only question was really the timing and the composition,” given the finite willingness of financial markets to endure budget shortfalls, New York-based Buiter said in a roundtable interview today on “Bloomberg Surveillance Midday” with Tom Keene. “This is very savage, but no more savage than what the U.S. will have to endure when it gets going.”
Stimulus spending to revive the economy and the lingering effects of the recession on tax revenue pushed the U.S. budget deficit for fiscal year 2010 to $1.29 trillion, the second- largest on record, the Treasury Department reported on Oct. 15. The gap was surpassed only by last year’s $1.42 trillion shortfall.
The U.S. will still be able to borrow for a while at “risk-free rates” because its markets remain bolstered by the dollar’s role as the world’s reserve currency, Buiter said.
“It won’t last forever, that buffer of protection,” Buiter said. “Market discipline is being eroded by the burden of unsustainable deficits.”
‘Overhang’ on Economy
Governments now face the question of when to begin addressing budget imbalances, said Howard Davies, chairman of the London School of Economics, in the interview.
“Our government has made a big throw of the dice today and said we’ve got to get on with it because the existence of this large deficit is an overhang on the economy preventing people from regaining confidence and investing,” Davies said. “They know that at some point they’re going to have to pay increased taxes or public spending’s going to be cut.”
The cuts are the right thing to do, Davies said.
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