In Need Of An Exit Strategy, Ctd

Ryan Avent is worried:

The problem here is that budget balancing amid a weak economy is a bit like pushing on a string. The more you increase taxes and reduce spending, the weaker is the economy, which leads in turn to reduced revenues and increased spending on things like unemployment insurance. But as Ms Reinhart and Mr Rogoff point out, if you don't address the deficit at all, then markets eventually get worried and interest rates rise, choking off recovery.

The way you get around this is by taking credible steps to address long-term deficit issues while maintaining government support for the economy in the short run.

This is what Mr Nabors claimed the Obama adminstration was after, but his statement is clearly undermined by adminstration forecasts suggesting the unemployment rate will be above 9.8% at the point at which the discretionary spending freeze sets in. Meanwhile, the freeze itself will do nothing to convince markets of the administration's deficit-cutting resolve, given that it will result in only $250 billion in savings over the next ten yearsa drop in the debt bucket.