May 25, 2005
Brad Setser Is Unhappy with the U.S. Treasury
There is a lot to be unhappy about it:
Brad Setser's Web Log: Rhetoric that runs ahead of reality: I noticed that the US Treasury statement that accompanied the foreign currency report adopted the rhetoric of shared sacrifice:
We are not bashing China in lieu of tackling our own problems; we in the US are committed to reducing our deficit and raising national savings.
The problem: the policies to back the rhetoric aren't there, and most of the world knows it. The much-touted partial privatization of Social Security won't raise national savings so long as it is financed by debt.... At best, it is neutral; at worse, it might lead national savings to fall.... The 'on-budget' fiscal deficit... seems to be falling for the same reason why the overall current account deficit is rising... [t]he real estate boom.... Tax revenues seem to have outperformed in part because of capital gains.... In an asset-based economy... tax revenues are quite pro-cyclical.... [T]he longer-term outlook is not pretty if the tax cuts are made permanent.
Nice words from the Treasury, but little credibility.
Posted by DeLong at May 25, 2005 03:32 PM