Last week, Washington has been buzzing to talk about reducing additional tax extensions and stimuli. Unemployment continued to double-digits, decision-makers think it is wise to delay deficit reduction until after retrieves the US economy. So that additional measures will be implemented to decrease the rate of unemployment and promote the activity of the company. But that happen once the economy stabilizes finally close to full employment? Prepare for a period of very slow growth.
Think about how unfold the best possible future. Assuming that Congress gets its act together for the two years of tax rates will remain low and employment increase slowly. If everything goes to plan, at the end of 2012, we see a little less than 8% unemployment. At this time, with the labour market steadily but slowly improving, Washington turn to the reduction of the deficit and the Federal Reserve will feel is no longer the need to engage in an expansionary monetary policy. Consider two effects.
Fiscal tightening
In 2013, we can expect a few things to arrive on the fiscal plan. First of all, Washington will finally have obtain the deficit seriously. Very high unemployment will allow Congress to postpone the serious debt reduction policy until then. But when the recovery is clearly underway and unemployment starts constant fall, the Government must stop so greatly to spend money.
Higher taxes
The first obvious step in 2012 will have to increase taxes. It is likely that we will see a tax reform which will include higher cross rates. Taxing the rich only cannot close the gap completely, so the bourgeoisie will also have to pay more.
Less expenditure = law reform
In addition to an increase in taxes, expenses will also be more controlled. To curb spending significantly from the Government, you must reform entitlements. Social security and Medicare could become less generous, for example. What amount of money the Government saves payments will convert less than dollars spent by the United States.
Two of these changes will be eventually mean the same thing: Americans will have less money to spend and save. As a result, revenue and investment with the two companies decline. This does not mean that a new recession strike, but this does not mean that strong growth will be more difficult with less money spent and invested.
Monetary tightening
Government taxation and spending is only a way in which Washington affects the economy, however. The US Federal Reserve took measures extremely aggressive to maintain stability and economic growth over the past few years. The federal funds rate was almost zero since the end of 2008. Reserve US Federal has also engaged in several quantitative easing efforts to maintain long term low and interest rates.
But in 2013, or perhaps even a little earlier, when the economy seems to be on more solid footing, Central Bank must tighten monetary policy to prevent the runaway inflation. To do this, it will have to sell the bulk of the assets of his inflated balance and raise interest rates.
Once again, that the US Federal Reserve began to increase interest rates, this slow further economic activity. Companies will face more expensive loans if they hope to develop. Americans will be discouraged to move to the record will increase interest rates. Real estate purchases, a wind will face also face as mortgage interest rates increase at levels not seen for years.
Yet once it not necessarily cause a recession, but there will be a more difficult to achieve real GDP growth rate.
Irrational expectations?
Yet, the wisest economists on earth do not appear to see this unavoidable. Here the most recent estimates of growth of the GDP of the US Federal Reserve.
You can see that their 2013 estimates vary between 3% and 5% and concentrated between 3.5% and 4.6%. How could this happen with higher taxes, less money rights affecting the economy and environment rising interest rates? The presence of aggressive fiscal measures and monetary tightening will be very difficult to achieve growth.
Still have been taken to history when taxes and interest rates were relatively high, and they have managed to grow rapidly. A good example is the end of the 1990s. Yet, who was a time that included the rise of an important new technology - Internet - provided a much higher growth that was normal. So if another unexpected new advance strikes from 2013, then he could propel United States high growth. But, assuming that the economy hums along at their normal pace, maintain high growth won't be easy.
In the decade or so after 2013, you'll probably get the same. There is at least a decade, not only a few years to reduce the deficit and the broader national debt by a significant amount. And the balance of the Federal Reserve has grown so large there to sell assets in the years to reduce to a manageable size, while maintaining high interest rates for an extended period avoid inflation. Long term above of 2.4% and 3.0% estimate is a bit more reasonable, but can still be optimistic. It is quite difficult to see how the us can really hope to achieve much higher than 2% growth in the kind of economic environment that will be necessary after 2012.
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