Monday, October 19, 2009
Ex-Tarp, deficit in 2009 was about 7% of GDP, like Reagan deficit of 1983
When you exclude the $364 billion that was spent on Tarp, the deficit for FY 2009 was about $1 trillion, which equates to about 7% of GDP. Reagan ran a deficit of 6.8% of GDP in 1983, so what's the big deal? And why all the Republican outrage?
Tarp should rightfully be excluded because it did not constitute any "real" spending; it was merely an asset swap and did absolutely nothing to sustain or bolster aggregate demand. What a waste! (Thanks, Hank Paulson!!)
In contrast, a payroll tax holiday or new spending or tax rebates in the amount spent on Tarp, would have been far more effective in sustaining demand.
And Tarp money never should have been given to non-bank financial intermediaries at all. If they were unable to operate as going concerns they should have been allowed to fail, with the Fed providing unlimited lending to commercial banks without the requirement of posting collateral.