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Fiscal discipline high now. Baker 12Peter, Obama More Conservative Than Hoover? Someone Thinks So, NYT, 5-23,
http://thecaucus.blogs.nytimes.com/2012/05/23/obama-more-conservative-than-hoover-someone-thinks-so/ Its not every day that a White House boasts of being more conservative than Herbert Hoover. But there was Jay Carney, the presidential press secretary, on Wednesday telling reporters aboard Air Force One that Mr. Hoover was a more profligate spender than President Obama. Clearly unimpressed by the questions he was getting from reporters, Mr. Carney volunteered an extensive and robust answer to one that was not asked, defending Mr. Obama against Republican charges of fiscal recklessness. He read a passage from Rex Nutting of MarketWatch stating that spending under Mr. Obama had grown even more slowly than under Mr. Hoover. The president has demonstrated significant fiscal restraint and applied a balanced approach to spending, Mr. Carney said as Mr. Obama headed here for the Air Force Academy commencement. Mr. Carney added pointedly that any reporting to the contrary would be the result of sloth and laziness. He added a familiar attack on former President George W. Bushs tax cu ts for the rich, which contributed significantly to the red ink that was gushing when Mr. Obama took over. The commentary cited by the White House concluded that spending is rising just 0.4 percent a year under Mr. Obama. But such calculations depend on when you start counting. Mr. Nutting starts from the first full fiscal year under Mr. Obama, which started Oct. 1, 2009, more than eight months after he took office, because that is the first budget the new president could fully shape. His calculation also assumes that spending will fall in the next fiscal year as currently projected by the Congressional Budget Office. Counting that way relieves Mr. Obama of any responsibility for any increased spending in his first months in office, when he pushed through Congress a stimulus package of about $800 billion in spending and tax cuts. Between the 2008 fiscal year, the last in which Mr. Bush was president for the full year, and the 2009 fiscal year, when both Mr. Bush and Mr. Obama were president for part of the year, total federal spending increased to $3.5 trillion from $3 trillion, or 17 percent. Each president would like to assign blame for that to the other.

Link Perception of fiscal discipline is key excessive deficit spending will destroy the perception of the dollar and collapse the global economy Bergsten 9 C. Fred, Director of the Institute for International Economics, former Assistant Secretary of the Treasury for International Affairs and Assistant for
International Economic Affairs to the National Security Council (The Dollar and the Deficits, Foreign Affa irs, lexis) A first step is to recognize the dangers of standing pat. For example, the United States' trade and current account deficits have declined sharply over the last three years, but absent new policy action, they are likely to start climbing again, rising to record levels and far beyond. Or

take the dollar. Its role as the dominant international currency has made it much easier for the United States to finance, and thus run up, large trade and current account deficits with the rest of the world over the past 30 years. These huge inflows of foreign capital, however, turned out to be an important cause of
the current economic crisis, because they contributed to the low interest rates, excessive liquidity, and loose monetary policies thatin combination with lax financial

large external deficits pose substantial risks to the US economy because foreign investors might at some point refuse to finance these deficits on terms compatible with US prosperity. Any sudden stop in lending to the United States would drive the dollar down, push inflation and interest rates up, and perhaps bring on a hard landing for the United Statesand the world economy at large. But it is now evident that it can be equally or even more damaging if foreign investors do finance large US deficits for prolonged
supervisionbrought on the overleveraging and underpricing of risk that produced the meltdown. It has long been known that periods. US policymakers, therefore, must recognize that large external deficits, the dominance of the dollar, and the large capital inflows that necessarily accompany deficits and currency dominance are no longer in the United States' national interest. Washington should welcome initiatives put forward over the past year by China and others to begin a serious discussion of reforming the international monetary system. If the rest of the world again finances the United States' large external deficits, the conditions that brought on the current crisis will be replicated. To a large extent, the US external deficit has an internal counterpart: the budget deficit. Higher budget deficits generally increase domestic demand for foreign goods and foreign capital and thus promote larger current account deficits. But the two deficits are not "twin" in any mechanistic sense, and they have moved in opposite directions at times, including at present. The latest projections by the Obama administration and the Congressional Budget Office (CBO) suggest that both in the short run, as a result of the crisis, and over the next decade or so, as baby boomers age, the US budget deficit will exceed all previous records by considerable margins. The Peterson Institute for International Economics projects that the international economic position of the United States is likely to deteriorate enormously as a result, with the current account deficit rising from a previous record of six percent of GDP to over 15 percent (more than $5 trillion annually) by 2030 and net debt climbing from $3.5 trillion today to $50 trillion (the equivalent of 140 percent of GDP and more than 700 percent of exports) by 2030. The United States would then be transferring a full seven percent ($2.5 trillion) of its entire economic output to foreigners every year in order to service its external debt. This untenable scenario highlights a grave triple threat for the United States. If the rest of the world again finances the United States' large external deficits, the conditions that brought on the current crisis will be replicated and the risk of calamity renewed. At the same time, increasing US demands on foreign investors would probably become unsustainable and produce a severe drop in the value of the dollar well before 2030, possibly bringing on a hard landing. And even if the United States were lucky enough to avoid future crises, the steadily rising transfer of US income to the rest of the world to service foreign debt would seriously erode Americans' standards of living. Hence, new record levels of trade and current account deficits would likely levy very heavy costs on the United States whether or not the rest of the world was willing to finance these deficits at prices compatible with US prosperity. Washington should seek to sharply limit these external deficits in the future and it is encouraging that the Obama administration has indicated its intention to move in that direction, opting for future US growth that is export-oriented, rather than consumption-oriented, and rejecting the role of the United States as the world's consumer of last resort. Balancing

the budget is the only reliable policy instrument for preventing such a buildup of foreign deficits and debt for the United States. As soon as the US economy recovers from the current

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enacting new taxes on consumption. The

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<Your Name> <Tournament Name> crisis, it is imperative that US policymakers restore a budget that is balanced over the economic cycle and, in fact, runs surpluses
during boom years. Measures that could be adopted now and phased in as growth is restored include containing the cost of medical care, reforming Social Security, and

US government's continued failure to responsibly address the fiscal future of the United States will imperil its global position as well as its future prosperity. The country's fate is already largely in the hands of its foreign creditors, starting with China but also including Japan, Russia, and a number of oil-exporting countries. Unless the United States quickly achieves and maintains a sustainable economic position, its ability to pursue autonomous economic and foreign policies will become increasingly compromised. Nuclear war. Friedberg and Schoenfeld 8 - Professor of politics and international relations at Princeton University's Woodrow Wilson School,
Aaron, Visiting scholar at the Witherspoon Institute in Princeton, N.J, Gabriel, The Dangers of a Diminished America, The Wall Street Journal, 10/21, http://online.wsj.com/article/SB122455074012352571.html?mod=googlenews_wsj

Pressures to cut defense spending, and to dodge the cost of waging two wars, already intense before this crisis, are likely to mount. Despite the success of the surge, the war in Iraq remains deeply unpopular. Precipitous withdrawal -- attractive to a sizable swath of the electorate before the financial implosion -- might well become even more popular with annual war bills running in the hundreds of billions. Protectionist sentiments are sure to grow stronger as jobs disappear in the coming slowdown. Even before our current woes, calls to save jobs
by restricting imports had begun to gather support among many Democrats and some Republicans. In a prolonged recession, gale-force winds of protectionism will blow. Then there are the dolorous consequences of a potential collapse of the world's financial architecture. For decades now, Americans have enjoyed the advantages of being at the center of that system. The worldwide use of the dollar, and the stability of our economy, among other things, made it easier for us to run huge budget deficits, as we counted on foreigners to pick up the tab by buying dollar-denominated assets as a safe haven. Will this be possible in the future? Meanwhile, traditional foreign-policy challenges are multiplying. The threat from al Qaeda and Islamic terrorist affiliates has not been extinguished. Iran and North Korea are continuing on their bellicose paths, while Pakistan and Afghanistan are progressing smartly down the road to chaos. Russia's new militancy and China's seemingly relentless rise also give cause for concern. If

America now tries to pull back from the world stage, it will leave a dangerous power vacuum. The stabilizing effects of our presence in Asia, our continuing commitment to Europe, and our position as defender of last resort for Middle East energy sources and supply lines could all be placed at risk. In such a scenario there are shades of the 1930s, when global trade and finance ground nearly to a halt, the peaceful democracies failed to cooperate, and aggressive powers led by the remorseless fanatics who rose up on the crest of economic disaster exploited their divisions. Today we run the risk that rogue states may choose to become ever more reckless with their nuclear toys, just at our moment of maximum vulnerability. The aftershocks of the financial crisis will almost certainly rock our principal strategic competitors even harder than they will rock us. The
dramatic free fall of the Russian stock market has demonstrated the fragility of a state whose economic performance hinges on high oil prices, now driven down by the global slowdown. China is perhaps even more fragile, its economic growth depending heavily on foreign investment and access to foreign markets. Both will now be constricted, inflicting economic pain and perhaps even sparking unrest in a country where political legitimacy rests on progress in the long march to prosperity. None

of this is good news if the authoritarian leaders of these countries seek to divert attention from internal travails with external adventures.

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UQFiscal D Now
Fiscal discipline high now. Baker 12Peter, Obama More Conservative Than Hoover? Someone Thinks So, NYT, 5-23,
http://thecaucus.blogs.nytimes.com/2012/05/23/obama-more-conservative-than-hoover-someone-thinks-so/ Its not every day that a White House boasts of being more conservative than Herbert Hoover. But there was Jay Carney, the presidential press secretary, on Wednesday telling reporters aboard Air Force One that Mr. Hoover was a more profligate spender than President Obama. Clearly unimpressed by the questions he was getting from reporters, Mr. Carney volunteered an extensive and robust answer to one that was not asked, defending Mr. Obama against Republican charges of fiscal recklessness. He read a passage from Rex Nutting of MarketWatch stating that spending under Mr. Obama had grown even more slowly than under Mr. Hoover. The president has demonstrated significant fiscal restraint and applied a balanced approach to spending, Mr. Carney said as Mr. Obama headed here for the Air Force Academy commencement. Mr. Carney added pointedly that any reporting to the contrary would be the result of sloth and laziness. He added a familiar attack on former President George W. Bushs ta x cuts for the rich, which contributed significantly to the red ink that was gushing when Mr. Obama took over. The commentary cited by the White House concluded that spending is rising just 0.4 percent a year under Mr. Obama. But such calculations depend on when you start counting. Mr. Nutting starts from the first full fiscal year under Mr. Obama, which started Oct. 1, 2009, more than eight months after he took office, because that is the first budget the new president could fully shape. His calculation also assumes that spending will fall in the next fiscal year as currently projected by the Congressional Budget Office. Counting that way relieves Mr. Obama of any responsibility for any increased spending in his first months in office, when he pushed through Congress a stimulus package of about $800 billion in spending and tax cuts. Between the 2008 fiscal year, the last in which Mr. Bush was president for the full year, and the 2009 fiscal year, when both Mr. Bush and Mr. Obama were president for part of the year, total federal spending increased to $3.5 trillion from $3 trillion, or 17 percent. Each president would like to assign blame for that to the other.

Uniqueness-Obama seeking fiscal discipline now-spending cuts and increased revenue plans prove Wolf et al 12(Obama's spending cuts would spread pain, ABC News, Richard Wolf and Kelly Kennedy, 9 -20-2011,
http://abcnews.go.com/Politics/obamas-spending-cuts-spread-pain/story?id=14560170#.T9L4oeJYtNt)PA 6/29/12 President Obama's full plan to slash upwards of $3 trillion from federal budget deficits over 10 years may be dead on arrival in Congress, but don't be surprised if some elements survive. Although Obama's proposed $1.5trillion in tax increases on upper-income Americans and corporations are getting most of the attention and opposition his spending cuts are more likely to win Republicans' support, budget experts say. "I'm proposing real, serious cuts in spending," Obama said Monday. "These savings are not only counted as part of our plan, but as part of the budget plan that nearly every Republican in the House voted for." So, although the reaction from Republicans was overwhelmingly negative, they are likely to accept some of Obama's proposed spending cuts, particularly in Medicare and Medicaid and then add to them. Those twin health care programs for seniors, the poor and people with disabilities serve nearly one in three Americans, and they are at the heart of the debate over cutting federal deficits. Together, they will cost the federal government about $750 billion this year, roughly 20% of the budget. Much of the debate Monday focused on Obama's retreat from an earlier willingness to consider raising Medicare's retirement age, gradually, from 65 to 67. That could save $125 billion over 10 years, once fully implemented. Obama didn't repeat the offer, made during negotiations with Republican House Speaker John Boehner this summer. But he did propose $248 billion in Medicare savings over 10 years and $72billion in Medicaid savings.

Fiscal discipline emerging now Forbes 5/4, (2012, The Time for Entitlement Reform is Now, http://www.forbes.com/sites/dougschoen/2012/05/04/the -time-forentitlement-reform-is-now/) Both Democrats and Republicans alike were surprised when Senate Budget

Chairman Kent Conrad recently introduced the blueprint of the Bowles-Simpson deficit-reduction plan as a starting point for the Senates budget negotiations.
Democrats expected Conrad to put forward a Democratic budget that would have been the first detailed deficit reduction plan in three years, if passed by the committee. Republicans claimed that this move was a stunt by the Democrats, indicative that the Democrats were not willing to vote on any budget plan that could expose them to political attacks before the November elections. And while Conrad himself acknowledged that a vote is not likely to take place anytime soon, by putting forth the Bowles-Simpson blueprint, named after the chairmen of President Obamas 2010 bipartisan deficit reduction commission, the issue of fiscal discipline and balancing the

budget has been brought back to the front of the national dialogue. Fiscal discipline is on the brink

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http://www.reuters.com/article/2012/06/07/us-usa-rating-fitch-idUSBRE8560YL20120607)

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<Your Name> <Tournament Name> Horowitz 6/7 (Jed, Senior Correspondent at Thomson Reuters, U.S. rating faces 2013 cut if no credible plan: Fitch, Reuters, 2012, Fitch Ratings reiterated on Thursday it would cut its sovereign credit rating for the United States next year if Washington cannot come to grips with its deficits and create a "credible" fiscal consolidation plan. "The United States
is the only country (of four major AAA-rated countries) which does not have a credible fiscal consolidation plan," and its debt-to-GDP ratio, or how much debt it has relative to the size of the economy, is expected to increase over the medium term, Ed Parker, sovereign ratings analyst, told a Fitch conference in New York. Lower credit ratings typically lead to higher borrowing costs, putting more strain on government balance sheets already straining to cut spending without sending their economies into a tailspin. Fitch revised down its credit outlook for the United States to negative in November from stable after a special congressional committee failed to agree on at least $1.2 trillion in deficit-reduction measures. At the time it said there was a chance for a U.S. downgrade in 2013, saying the failure of the committee increases the fiscal burden on the next administration. The U.S. economy's growth rate in the first quarter was revised down last month to 1.9 percent from a prior estimate of 2.2 percent as businesses restocked shelves at a moderate pace and government spending declined sharply. It grew 3.0 percent in the fourth quarter of 2011.

The US is on a path towards fiscal discipline including spending cuts. Brooks, 2012 [David, 17 Apr. "The White House Argument." Nytimes.com. The New York Times.
<http://www.nytimes.com/2012/04/17/opinion/brooks-the-white-house-argument.html>.] They argue that the presidents 2013 budget is a step toward fiscal stability that

will also pave the way for bigger steps in the years ahead. They estimate that their budget would produce $5 trillion in budget savings over a decade. It would raise $1.5 trillion in new revenue by raising taxes on those making more than $250,000 a year. There would also be a broad range of spending cuts. These include the $1.7 trillion in cuts the administration agreed to in the budget deals with Republicans over
the summer, and several others (including the somewhat gimmicky $617 billion cut by not fighting the wars in Iraq and Afghanistan for another decade). Further, the president is parsimonious when it comes to domestic spending. The White House has prepared a series of charts to illustrate the administrations fiscal discipline. The most interesting concerns domestic discretionary spending, which is spending on things like education, welfare and social support. Going back to 1962, domestic spending has hovered around 3.3 percent of G.D.P. In big-spending years (the Jimmy Carter years), it rose to about 4.4 percent. In low-spending years (Ronald Reagans and Bill Clintons second terms), it fell to about 2.9 percent of G.D.P. During Obamas presidency, domestic spending topped out at 4 perce nt of G.D.P. But, in the Obama budget, over the next 10 years, that spending would fall to 2.2 percent, much lower than anything Reagan achieved. Under Paul Ryans budget, by the way, that spending would fall to 1.8 percent, which the Obama administration regards as savagely low.

Spending will drop to its lowest level in the next decade and current spending levels will be offset by increases in revenue, reducing the deficit substantially. CBO, 2012 [United States, 31 Jan. The Budget and Economic Outlook: Fiscal Years 2012 to 2022. The Congressional Budget Office.
<http://cbo.gov/publication/42905>.]

CBO projects a $1.1 trillion federal budget deficit for fiscal year 2012 if current laws remain unchanged. Measured as a share of the nations output (gross domestic product, or GDP), that shortfall of 7.0 percent is nearly 2 percentage points below the deficit recorded in 2011, but still higher than any deficit between 1947 and 2008. Over the next few years, projected deficits in CBO's baseline decline markedly, dropping to under $200 billion and averaging 1.5 percent of GDP over the 20132022 period.Revenues Much of the projected decline in the deficit occurs because, under current law, revenues are projected to shoot up by almost $800 billion, or more than 30 percent, between 2012 and 2014from
16.3 percent of GDP in 2012 to 20.0 percent in 2014. That increase is mostly the result of of the recent or scheduled expirations of tax provisions, such as those initially enacted in 2001, 2003, and 2009 that lower income tax rates and those that limit the number of people subject to the alternative minimum tax (AMT). Under current law, CBO projects that revenues will continue to rise relative to GDP after 2014 largely because increases in taxpayers inflation-adjusted income will push more income into higher tax brackets and subject more of it to the AMT. Spending Outlays in CBOs baseline projections decline modestly relative to GDP over the next several years before turning up again later in the decade. The modest declines are the result of an expanding economy and statutory caps on discretionary appropriations. The aging of the population and rising costs for health care drive increases in spending in later years. Projected spending in CBOs baseline averages 21.9 percent of GDP over the 20132022 period. That figure is less than the 23.2 percent CBO estimates for 2012, but it remains elevated by historical standards. As a share of GDP, discretionary spending is projected to decline to its lowest level in the past 50 years by 2022, but that decline will be partially offset by increases in spending for mandatory programs, which are projected to climb from 13.3 percent of GDP in 2013 to 14.3 percent in 2022. Driven by higher interest rates and additional accumulation of debt, net interest costs will grow significantlyfrom 1.4 percent of GDP this year to 2.5 percent in 2022.

In the status quo budget cuts will take place that will significantly reduce federal spending and the deficit, marking a move towards fiscal discipline.

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<Your Name> <Tournament Name> Sahadi, 2012. [Jeanne, 05 June. -- The Congressional Budget Office on Tuesday Painted a Stark Picture of the Country's Fiscal. "CBO:
Hard Choices Ahead on Debt." Money.cnn.com. Cable News Network. <http://money.cnn.com/2012/06/05/news/economy/cbo-federalbudget/index.htm?iid=SF_BN_River>.]

The CBO, the nonpartisan official beancounter in Washington, painted two scenarios for Congress.The first assumes laws currently in place rule the day. That means lawmakers do nothing to lessen the effects of the socalled fiscal cliff and allow $7 trillion in tax hikes and spending cuts start to take effect in January. Under that scenario over the long run, debt falls to 53% of the size of the economy by 2037 from more than 70% today. Tax
revenue would rise to 24% of GDP in 25 years and keep growing. That would be well above the 18.3% historical average. Simultaneously, spending in vast portions of the federal budget would shrink dramatically. Other than Medicare, Medicaid, Social Security and interest, spending would fall to the lowest percentage of GDP since before World War II.

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UQEcon Up
The US economy will just avoid a recession this fiscal year Bloomberg News 12(Bloomberg News, Tampa Bay Times, June 5,2012, U.S. economy's repeat pattern has silver lining
,http://www.tampabay.com/news/business/markets/us-economys-repeat-pattern-has-silver-lining/1233638)PA 6/29/12 WASHINGTON The U.S. economy looks set to deliver a repeat performance in 2012: For the third straight year, it may suffer a swoon yet not slip into a recession. "I don't think the slowdown will be any more consequential than the past two years," said John Ryding, a former Federal Reserve researcher who is chief economist at RDQ Economics in New York. "There are positives out there in the economy. We'll avoid a recession." Household balance sheets are in better shape, with indebtedness down about $100 billion in the first quarter, according to the New York Fed. Banks are more profitable: Earnings have risen for 11 straight quarters, based on data compiled by the Federal Deposit Insurance Corp. Even the housing market is reviving, with starts through the first four months of this year 24 percent higher than the same 2011 period. Stocks plunged Friday on news that American employers last month added the fewest workers to their payrolls in a year while the jobless rate rose. After the jobs report, Michael Feroli, chief U.S. economist at JPMorgan Chase in New York, lowered his forecast for third-quarter economic growth to 2 percent from 3 percent.

Economy is improving, but is far from a complete recovery Rushe 6/26/12(Dominic, Guardian writer and contributor,OECD: US economy is improving but recovery is far from complete-Report
suggests economy has 'gained momentum' but says long-term unemployment and income equality must be solved http://www.guardian.co.uk/business/2012/jun/26/oecd-us-economy-recovery?newsfeed=true ) The US recovery remains on track but "fissures" have begun to appear in the world's largest economy as it struggles with record long-term unemployment and income inequality, according to a report by the Organization for Economic Co-operation and Development. The international economist group is more bullish on the economy than Federal Reserve chairman Ben Bernanke, who recently downgraded his forecasts for the US economy. And the report may prove useful ammunition for the Obama administration as the economy emerges as the key battleground of the 2012 election. The OECD offered support to president Barack Obama's plans to cut tax breaks for America's wealthiest, a plan known as the 'Buffett rule' after its championing by billionaire investor Warren Buffett. Growth in the US will remain moderate this year but the OECD report concludes that America's

economic recovery has "gained momentum". Consumer and business spending have risen and unemployment, though still high at 8.2%, has fallen nearly two percentage points from its peak in 2009. "Even with these substantial improvements, however, the recovery is far from complete," the OECD warns. Uniqueness- Economy is growing- but not too strongly Associated Press 6/28/12 (US economy grew at modest 1.9 percent rate http://www.foxnews.com/politics/2012/06/28/us-economygrew-at-modest-1-percent-rate/)

The U.S. economy expanded at a 1.9 percent annual rate in the first three months of the year, a weak pace that few economists see changing much this year. The Commerce Department on Thursday made no change in its third and final estimate for growth in the January-March quarter. Slower growth in consumer spending was offset by faster growth in businesses investment, leaving the overall pace the same. A sluggish job market and diminished consumer and business confidence have kept the economy from accelerating in the April-June quarter. Most economists say growth has likely stayed roughly the
same. Growth of around 1.9 percent typically generates roughly 90,000 jobs a month. That's too weak to lower the unemployment rate, which was 8.2 percent last month. The government offers three estimates for gross domestic product, or GDP, which is the output of all goods and services. It includes everything from a cup of coffee to production of military jets. Consumer spending accounts for 70 percent of economic activity. It grew at a 2.5 percent rate in the first quarter, slightly below the previous 2.7 percent estimate.

Uniqueness/Brink: Economy is growing sluggishly yet, but could still collapse any moment AP 6/28 (Associated Press. June 28, 2012. U.S. economy grew at modest 1.9%. http://www.latimes.com/business/la -fiw-economy-gdp20120628,0,3091635.story)

The U.S. economy expanded at a 1.9 percent annual rate in the first three months of the year, a weak pace that few economists see changing much this year.
The Commerce Department on Thursday made no change in its third and final estimate for growth in the January-March quarter. Slower growth in consumer spending was offset by faster growth in businesses investment in buildings, leaving the overall pace the same.

Most economists say growth has likely stayed the same or possibly weakened since then. A sluggish job market and diminished consumer and business confidence have likely kept the economy from accelerating in the April-

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<Your Name> <Tournament Name> June quarter. Growth of around 1.9 percent typically generates roughly 90,000 jobs a month. That's too weak to lower the unemployment rate, which was 8.2 percent last month.
Separately, the Labor Department said the number of people seeking weekly unemployment benefits fell but not enough to signal stronger hiring in June. Applications declined by 6,000 to a seasonally adjusted 386,000. When applications rise above 375,000, it generally means that hiring isn't strong enough to rapidly lower the unemployment rate. The government offers three estimates for gross domestic product, or GDP, which is the output of all goods and services. It includes everything from a cup of coffee to production of military jets Consumer spending accounts for roughly 70 percent of economic activity. It grew at a 2.5 percent annual rate in the first quarter, slightly below the previous 2.7 percent estimate. Jennifer Lee, senior economist at BMO Capital Markets, said the faster growth in business investment was largely due to more spending on buildings and factories. That could be a sign that businesses are expanding. And home construction grew at an annual rate of 20 percent, even better than estimated a month ago. Many economists say the housing market is finally starting to recover and that housing will contribute to annual growth for the first time in five years. "So on net, no change," Lee said. "But the components point to stronger business investment in structures and housing, but slower growth in the all-important consumer spending and trade." Some economists are hopeful that consumer spending could rise in the second half of the year. They point to lower gas prices, which should give Americans more money to spend on vacations, furniture, meals out and other discretionary purchases. But some analysts warn that without more hiring and better pay increases, most Americans could hunker down and spend less. A closely watched private survey released this week showed consumer confidence fell in June for the fourth straight month. The Conference Board said worries about the job market outweighed lower gas prices and steady improvement in the housing market. Employers have added an average of just 73,000 jobs a month in April and May. That followed average gains of 226,000 a month in the first three months of the year.

And U.S. manufacturing activity, which has helped drive growth since the recession ended three years ago, has weakened. Factories produced less in May than April, the Federal Reserve said earlier this month. Automakers cut back on output for
the first time in six months. In June, manufacturing activity barely grew in the New York region and contracted sharply in the Philadelphia area, according to surveys by regional Federal Reserve banks. Europe's debt crisis has dampened demand for U.S. exports. And consumers barely increased their spending at retail businesses in May and April. There are some hopeful signs that things are improving. U.S. factories received more orders for long-lasting manufactured goods in May, while a key measure of business investment plans rose. And the housing market is looking a little better. Home sales are up from last year, home prices are rising in most cities, and homebuilders are planning to break ground on more projects in the next 12 months. Still, the Federal Reserve has downgraded its forecast for the year. It now expects growth of just 1.9 percent to 2.4 percent for 2012. That's half a percentage point lower than its previous estimate in April. And it thinks the unemployment rate won't fall much further this year.

The economy is recovering now Kroneberg 6/13 (Jerry, Editor of the Boston Herald, 2012, "Expert: Don't worry, economy's OK", The Boston Herald, June 13, 2012,
http://www.bostonherald.com/business/general/view/20220613expert_dont_worry_economys_ok_mfs_guru_sees_no_signs_of_doubledip_recession_or_bursting_bubbles/srvc=home&position=also)

The U.S. economy shows no signs of a double-dip recession in fact, were probably only halfway into a growth phase, Hub financial giant MFS Investment Management said. (Corporate) margins, profits as a percentage of gross domestic product and the trajectory of profit growth still suggest that the U.S. (expansion) cycle is intact,
MFS Chief Investment Strategist James Swanson said in releasing the firms semiannual Investment Outlook. The expert said the U.S. economy has been growing for only three years since the Great Recession officially ended in June 2009. Thats about half the length of a typical post-World War II expansion. Swanson added that none of the things that usually cause recessions soaring oil prices, Federal Reserve interest-rate hikes or an investment bubble thats about to pop are on the horizon. I cant identify a bubble in housing, I cant identify a bubble in the stock market, the Fed has had no interest-rate increase for two years and oil (prices are) going down, he said. Swanson believes the U.S. economy is staying on track partly because slow wage growth and increased worker productivity are helping American businesses compete in the global marketplace. Labor (expenses) as a share of the economy have not kept pace, but this has allowed the United States on the manufacturing/export side to be very, very competitive, he said. The economist said U.S. workers are making up for weak pay gains by putting in more hours, thus boosting their overall wages. He said thats helping prop up consumption good news in an economy where consumer spending accounts for 70 percent of all activity. Longer hours (and slightly higher) wages are a source of much of the income being used by the consumer, Swanson said. He added that the Great Recession has left homes, cars and other big-ticket items close to or at their most-affordable levels ever. As a result, consumers have kept on buying things without taking on additional debt a good long-term sign for the economy, Swanson said. (Growth) is organic and sustainable, he said. Its not being fueled by debt spending at the corporate or consumer level. And in a good sign for future investment gains, Swanson said the Standard & Poors 500 index has risen just 95 percent since the recession ended. Thats half the boost historically seen during growth periods.

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<Your Name> <Tournament Name> Economy recovering now, but its fragile OECD (2012), [OECD Economic Outlook, Vol. 2012/1, OECD Publishing. <http://dx.doi.org/10.1787/eco_outlook-v2012-1-en]>. The
OECD is an international economic organization founded to stimulate economic growth]. The economic recovery has gained momentum since the first half of last year,

with moderate employment gains and a pick-up in the pace of consumer spending. Nevertheless, real GDP growth is projected to increase only gradually this year and next, as the economy is still overcoming important hurdles. Housing demand has increased noticeably, but the overhand of
unsold homes and the tide of foreclosures will restrain the revival in residential investment. The programmed expiration of tax cuts and emergency unemployment benefits, together with automatic federal spending cuts, would result in a sharp fiscal retrenchment in 2013 that might derail the recovery. Consolidation is necessary but it should be implemented at a steady, gradual pace consistent with a mediumterm plan to restore fiscal stability. Restricting tax expenditures would lower the deficit while reducing market distortions and narrowing income inequality. Monetary policy should remain accomodative as long as the extensive economic slack persists.

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UQA2 Infrastructure Now

Even current transportation infrastructure investments are offset by spending cuts and tax increases. Allen, 2011 [JoAnne, 7 Sept. "Obama to Propose $300 Billion Jobs Package." Reuters.com. Reuters. Web.
<http://www.reuters.com/article/2011/09/07/us-obama-jobs-idUSTRE78176520110907>] .The price tag of the proposed package, to be announced by Obama in a nationally televised speech to Congress on Thursday, would be offset by other cuts that the president would outline, CNN reported, citing Democratic sources. Bloomberg News said the plan would inject more than $300 billion into the economy next year through tax cuts, spending on infrastructure, and aid to state and local governments. Obama would offset those short-term costs by calling on Congress to raise tax revenues in a deficit-cutting proposal he will lay out next week, the news agency reported, without citing sources.

The federal government is rejecting propositions for expensive high speed rail projects. Doyle, 2012. [Michael, 30 June. "House Republicans Take Stand against High-speed Rail Spending." House Republicans Take Stand
against High-speed Rail Spending. The Fresno Bee, Web. <http://www.fresnobee.com/2012/06/29/2893074/house-republicans-take-standagainst.html>.] WASHINGTON -- The Republican-controlled House on Friday reiterated its intention not to spend new federal dollars next year on California's controversial high-speed rail project.By a 239-185 vote, cast nearly entirely along party lines, the House approved language authored by Rep. Jeff Denham, R-Turlock, meant to block the high-speed rail spending. The amendment was added to a Fiscal 2013 transportation spending bill.

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UQA2 Fiscal Cliff

US will narrowly avoid a credit downgrade and economic collapse nowfiscal discipline is increasing. The Hill 7-10-12 -- Fitch: US still AAA nation, but dangers loom, http://thehill.com/blogs/on-the-money/budget/237081-fitch-us-stillaaa-nation-but-dangers-loom

The United States is still a AAA nation in the eyes of FitchRatings, which affirmed the United States's top-shelf rating Tuesday. However, the agency warned that high-stakes brinkmanship from Congress on either the "fiscal cliff" or the debt limit in the coming months could threaten that rating. In updated analysis, Fitch said it views it as "likely" that lawmakers will resolve the fiscal cliff by either repealing or delaying "all or some" of the automatic spending cuts and tax increases set to take effect on Jan. 1. But if lawmakers fail to strike a deal on averting the glut of extreme policy swings set for 2012, it could push the country into "an unnecessary and avoidable recession," which would threaten the
AAA rating.

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LInfrastructure
Infrastructure spending increases the deficit, fails to bring in surpluses to offset spending, and consistently runs over budget. Rugy and Mitchell, 2011. [Veronique De and Matthew, Sept."Would More Infrastructure Spending Stimulate the Economy?"
Mercatus.org. Mercatus Center. <http://mercatus.org/publication/would-more-infrastructure-spending-stimulate-economy>.] Not temporary: Even in Keynesian models, stimulus is only effective as a short-run measure. In fact, Keynesians also call for surpluses during an upswing.24 In reality, however, the political process prefers to implement the first Keynesian prescription (deficit-financed spending) but not the second (surpluses to pay off the debt).25 The inevitable result is a persistent deficit that, year-in, year-out, adds to the national debt.26 A review of historical stimulus efforts has shown that temporary stimulus spending tends to linger and that two years after an initial stimulus, 95 percent of the spending -up effect: Evidence from World War II suggests that when spending spikes, as is the case during the current recession, it tends not to return to pre-spike levels.28 This ratchet up in spending is exacerbated when federal spending is channeled through state and local governments, as was the case in ARRA. Data from 50 states over a 13-year period show that temporary grants from the federal government to state and local governments cause the latter to increase their own future taxes by between 33 and 42 cents for every dollar in federal grants received.29 Cost overruns are the rule rather than the exception: The most

comprehensive study of cost overruns examines 20 nations spanning five continents. The authors find that nine out of 10 public works projects come in over budget.30 Cost overruns dramatically increase infrastructure spending: Overruns routinely range from 50 to 100 percent of the original estimate.31 For rail, the average cost is 44.7 percent greater
than the estimated cost at the time the decision is made. For bridges and tunnels, the equivalent figure is 33.8 percent, and for roads 20.4 percent.32 On average, U.S. cost-overruns reached $55 billion per year.33 Even if they lead to localized job growth, these investments are usually inefficient uses of public resources.

Link: Transportation infrastructure is hecka expensive and filled with waste. Levinson 11 (Dr. David Levinson. November 22, 2011. RP Braun/CTS Chair in Transportation Engineering and Director of Nexus.
Transportation costs too much. http://blog.lib.umn.edu/levin031/transportationist/2011/11/transportation-costs-too-much.html) Yet unlike independent booksellers, we weep not for the independent contractors and businesses that charge so much for transportation infrastructure, equipment, and operations. Signalized intersections (~$175K), buses (~$400K), roundabouts (~$300K), loop detectors (~$5K) (ed. installed), diamond interchanges (~$9M), bridges to nowhere Houlton, Wisconsin (~$668M), light rail lines (~$1.4B), high-speed rail lines (~$100B), etc. are just some of the all quite pricey elements of transportation in early 21st century America. It sure seems like we should be able to build this cheaper. Think about it, $175K for 12 lightbulbs on a timer. What's going wrong? I have several hypotheses (please add others in the comments): Standards have risen. Our obsession with safety, features, environmental protection, and quality drive up the cost. Engineering design is often 20% of project costs. If only we would tolerate a few more deaths, a bus without AC, pollution, and frequent breakdowns, our initial costs would be lower. But when do reasonable investments become gold plating? Does the firetruck really need to do a 360 degree turn on the cul-de-sac, or can it back out? Principal-agent problem. Public works agencies are spending Other People's Money, and so are less motivated to get value for dollar than an individual consumer on their own. This principal-agent problem prevails in lots of organizations, but especially so in public works where the bias is not to have a failure. There was an old saying in business, no one ever got fired for buying IBM. The same holds in public works, where rocking the boat with new or innovative technologies is not sufficiently rewarded. Thin markets. There is no Amazon.com or eBay for public works. I cannot go on Amazon and buy a transit bus or an interchange. The internet has not driven down prices in this field the way it has in so many others. As a result a few vendors can collude or orchestrate higher prices than would be faced in a more competitive market. There are in-sufficient economies of scale. When everything is bespoke, there is no opportunity for standardization and economies of scale. While many rail against cookie-cutter design, it is only with cookie-cutters that we get lots of cookies. Projects are scoped wrong. We have investments that don't match actual demands. And this is not just for megaprojects. We have big buses serving few passengers. We have overgrown highways. We have a fear of building too small and having congestion or crowding so we build too big. Benefits are concentrated, costs are diffuse. As a

result, the known beneficiaries lobby hard for projects, but not just to build it, but to build it in a way that is expensive. Costs are diffuse, it is seldom worth the taxpayer's time to oppose a project just because of its costs, which are spread among millions of other taxpayers. Decision-makers are remote. Remote actors cannot have precise information about local conditions, and in the absence of a free market in transportation (there is generally one buyer, who is generally a government
agency), prices are not clear. As a result these remote actors misallocate because they are misinformed. This notion derives from the Economic calculation problem and Hayek's Fatal Conceit. No one actually does B/C analysis. A recent headline in the San Jose

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Mercury News says: Bay Area transportation projects to be judged on benefits vs. costs - : ""Talk to any business person about not having a benefits-vs.-cost discussion and they'll say, 'Duh, you mean you don't do that?' " said the commission's executive director, Steve Heminger. "They insist on it, but in the transportation profession it is not all that common. ... This levels the playing field."" Heminger was appointed executive director in 2001 and hired in 1993, and only *now* they are doing benefit/cost analysis. At any rate, looking at the ratios presented in the story, they are clearly doing it wrong. Whether it is common or not I will leave to politicians or political scientists, however it has been the textbook procedure for a very long time. I suppose it is progress to at least acknowledge using B/C analysis even if the implementation is flawed

Link-The plan would be massively over budget-dont listen to their link turns-their authors lie-our evidence subsumes this warrant Mitchell et al 11(September 11, WOULD MORE INFRASTRUCTURE SPENDING STIMULATE THE ECONOMY?,Veronique de
Rugy and Matthew Mitchell professors at the Mercatus Center at George Mason University,http://mercatus.org/sites/default/files/publication/infrastructure_deRugy_WP_9-12-11.pdf)PA 6/29/12

Cost overruns are the rule rather than the exception: The most comprehensive study of cost overruns examines 20 nations spanning five continents. The authors find that nine out of 10 public works projects come in over budget.30 Cost overruns dramatically increase infrastructure spending: Overruns routinely range from 50 to 100 percent of the original estimate.31 For rail, the average cost is 44.7 percent greater than the estimated cost at the time the decision is made. For
bridges and tunnels, the equivalent figure is 33.8 percent, and for roads 20.4 percent.32 On average, U.S. cost-overruns reached $55 billion per year.33 Even if they lead to localized job growth, these investments are usually inefficient uses of public resources. Inaccurate estimates of demand plague infrastructure projects: A study of 208 projects in 14 nations on five continents shows that 9 out of 10 rail projects overestimate the actual traffic.34 Moreover, 84 percent of rail-passenger forecasts are wrong by more than 20 percent. Thus, for rail, passenger traffic average 51.4 percent less than estimated traffic.35 This means that there is a systematic tendency to overestimate rail revenues. For roads, actual vehicle traffic is on average 9.5 percent higher than forecast traffic and 50 percent of road traffic forecasts are wrong by more than 20 percent.36 In this case, there is a systematic tendency to underestimate the financial and congestion costs of roads. Survival of the un-fittest: Studies have shown that project promoters routinely ignore, hide, or otherwise leave out important project costs and risks to make total costs appear lower.37 Researchers refer to this as the planning fallacy or the optimism bias. Scholars have also found that it can be politically rewarding to lie about the costs and benefits of a project. The data show that the political process is more likely to give funding to managers who underestimate the costs and overestimate the benefits. In other words, it is not the best projects that get implemented but the ones that look the best on paper.38

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LPPP
Government funded programs and PPPs threaten fiscal stability. Abadie, 2011 [Richard, and Peter Brown. "OECD Governments Are Facing a Perfect Storm following the Global Finance." Project
Finance International. Chief Executives' Forum, Web. <http://www.ceforum.org/upload2/PwC_Infrastructure_Investment_in_the_Wake_of_Crisis_Mar11.pdf>.] The long-term effect of these spending cuts on the future PPP market is uncertain. High budget deficits and borrowing levels should encourage the use of private finance to deliver infrastructure, particularly economic infrastructure that is paid for by users. However, social infrastructure that relies on government as a payer is more likely to see reduced investment. The example of Portugal may provide a cautionary tale for policy-makers as they consider taking on new PPP projects in this climate. Over the last decade Portugal has committed heavily to PPP schemes, including 13 road schemes. But the contractual obligations of PPP payments risk plunging government finances into greater difficulties in the future. With public debt at around 80% of GDP, the government cannot afford to run longterm deficits. Faced with this dilemma, Portugal has recently put on hold a range of future projects, including a number of PPP rail lines and hospital projects.

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LHSR
Turn: The cost of high-speed rail is too high and would lead to massive budget deficits and would be a burden on tax-payers, and would stall national economic growth Cox, January 31, 2011 [Wendell, principal of Demographia, an international public-policy consultancy in St. Louis. High-Speed Rail,
Budget Buster, http://www.nationalreview.com/articles/258417/high -speed-rail-budget-buster-wendell-cox]

If the nation is going to reduce its out-of-control spending, the first step is to stop spending money on things we do not need. Despite President Obamas call in his State of the Union speech for linking 80 percent of the nation by high-speed rail, it is hard to imagine a more unnecessary program. For example, people who travel between Los Angeles and
San Francisco along the route planned for one of the nations first high-speed-rail projects already have choices. They can fly, drive, take the bus, or travel by train. True, some would prefer to tax their fellow citizens so that they can have another choice, high-speed rail. But indulging this desire would be as legitimate as funding government grocery stores for people who prefer not to shop at their local grocery chains. Among intercity transport modes, only Amtrak is materially subsidized. User fees pay virtually all the costs of airlines and airports, which (together with connecting ground transportation) link any two points in the nation within a day. The intercity highway system goes everywhere, and nearly all of it was built with user fees paid by drivers, truckers, and bus companies. High-speed rail is a

budget buster. Japan, with the worlds leading system, illustrates the financial devastation that high-speed rail can produce. For 25 years, Japan borrowed to build a system serving the ideal rail corridor, nestled along a single coast with a population of
more than 75 million people. Ridership was artificially increased by high gasoline prices and one of the highest highway tolls in the world. Yet this modest system, only twice as long as proposed California system, played a major role in driving up a gargantuan rail debt that was transferred to Japanese taxpayers. The rail debt added more than 10 percent to the national debt . This is akin to adding $1.4

trillion to the U.S. national debt. Virtually everywhere high-speed rail has been constructed, financial liability has fallen to the taxpayers. In Taiwan and the United Kingdom, taxpayers assumed billions of dollars in private debts for much more modest high-speed-rail systems than Japans. High-speed rail jobs are some of the most expensive the government can provide. Turns case. Staley, August 19, 2009 [Sam, Ph.D., director of urban growth and land use policy for Reason Foundation, Why High -Speed Rail Fails as
a Jobs Program] http://reason.com/archives/2009/08/18/why-high-speed-rail-fails-as-a

In April, President Barack Obama claimed "my high speed rail proposal will lead to innovations in the way we travel" and new rail lines "will generate many thousands of construction jobs over several years, as well as permanent jobs for rail employees and increased economic activity in the destinations these trains serve." Even House Minority Whip
Eric Cantor (R-Va.), who voted against the stimulus bill, now wildly praises rail's job-creation potential, writing, "It is estimated that creating a high-speed railway through Virginia will generate as many as 185,500 jobs, as much as $21.2 billion in economic development, and pull nearly 6.5 million cars off the road annually. Providing a high-speed rail service from Washington, D.C. to Richmond will drive economic development throughout our region for many years to come." Michigan Gov. Jennifer Granholm calls the Midwest high-speed rail corridor a "one-of-a-kind partnership that will create jobs for Michigan workers, enhance transportation options for citizens, and provide significant economic development opportunities for communities." Parroting estimates made by the Association of American Railroads, Gov. Granholm claims that a $1 billion investment in rail will generate 20,000 jobs. The $1 billion estimate for "investment" refers to construction, maintenance, and the purchase of equipment such as locomotives and train cars to run on rail lines. Setting aside Rep. Cantor's ludicrous 185,000 job creation claimswhich are so unreasonably high as to strain credibility, let alone

plausibilityeven the 20,000 jobs per billion dollars spent figure cited by Gov. Granholm would represent a very expensive public jobs program. At the most basic level, that works out to $50,000 per job and would likely represent a subsidy higher than the wages paid to the typical worker. There are, in fact, better and cheaper ways to create
jobs. For example, the federal government could give tax credits to private firms that create new jobs. This type of new jobs subsidy would run about $20,000 per worker and spur up to 1.3 million jobs according analysis by the Upjohn Institute for Employment Research in Michigan.

California and Florida prove high-speed rail cost estimates are low. Costs will rise dramatically once projects commence. Cox, January 31, 2011 [Wendell, principal of Demographia, an international public-policy consultancy in St. Louis. High-Speed Rail,
Budget Buster, http://www.nationalreview.com/articles/258417/high-speed-rail-budget-buster-wendell-cox]

High-speed-rail cost escalation has reached these shores. Even before the first shovel has been turned, Californias high-speed-rail costs have risen at least 50 percent, inflation adjusted. The cost estimates for the first approved section of the

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<Tournament Name> Florida, boosters tell taxpayers that their liability for the Tampa to Orlando high-speed-rail line would be only $280 million, and that, somehow, a private bidder will shower additional billions upon them to pay any cost overruns.
Los AngelestoSan Francisco line, a train to nowhere from Corcoran to B orden, indicate escalation beyond $45 billion. In

The High Speed Rail System leads to unimaginable debt Sean Rotson1/31/ 2012 http://www.columbian.com/news/2012/jan/31/high-speed-rail-a-one-way-ticket-to-more-debt-wast/ California has a huge state debt and Washington has a huge national debt. But that does not discourage either Governor Jerry Brown or President Barack Obama from wanting to launch a very costly high-speed rail system.
Most of us might be a little skittish about spending money if we were teetering on the brink of bankruptcy. But the beauty of politics is that it is all other peoples money, including generations yet unborn. The high-speed rail system proposed for California has been envisioned as a model for similar systems elsewhere in the United States. A recent story in the San Francisco Chronicle used the high-speed rail system in Spain as an analogy for California. Spain is about the same size as California, and has a similar population density -- and population density is the key to the economic viability of mass transportation, from subways to highspeed rail. It so happens that I have ridden on Spains high -speed rail system. It was very nice, especially since I did not have to pay the full costs, which were subsidized by the Spanish taxpayers. While the Spanish government has been subsidizing the passengers on its high-speed rail system, the European Union has been subsidizing the Spanish government. Someone once said that government is the illusion that we can all live off somebody else. These high-speed rail system is not even covering its operating costs, never mind the enormous costs of setting up the system in the first place. One reason is that half the seats are empty in the highspeed trains in Spain. That is what happens when you dont have the population density required for passengers to cover the o perating costs. An economics professor at the University of Barcelona says that Spain has not recovered one single euro from the infrastructure investment.The most famous high-speed rail system is that in Japan, one of the most densely populated countries in the world. The bullet train between Tokyo and Osaka has 130 million riders a year. Tokyo alone has more than three times the population of San Francisco and Los Angeles put together. In California, an element of farce has been added to the impending economic tragedy, if the envisioned high-speed rail system actually materializes. The first leg of the system is planned to run between Fresno and Bakersfield. If those names dont ring a bell with you, there is a reason. They are modest -sized communities out in the agricultural San Joaquin Valley, well removed from San Francisco or Los Angeles. You can bet the rent money that high-speed rail traffic between Fresno and Bakersfield will never come within shouting distance of covering the operating costs. Some people have analogized putting such a rail line between these two towns to the infamous bridge to nowhere in Alaska. Why are they doing it? Because they can. If they began this project where they want it to go -- between San Francisco and Los Angeles -- they would run into so much opposition from the environmentalists, and from local politicians influenced by the environmentalists, that the delays could take the high-speed rail advocates beyond the time limit for using the federal money. But the green fanatics have not yet taken over politically out in the San Joaquin Valley. The only reason for even thinking about building a high-speed rail line between Fresno and Bakersfield is just to get the project under way with federal money, making it politically more difficult to stop the larger project for a similar rail line between San Francisco and Los Angeles. In other words, they are going to start wasting money out in the valley, so that they will be

able to waste more money later on, along the coast. This may not make any sense economically, but it can make sense politically for Jerry Brown and Barack Obama. An old song ended, Youve been running around in circles, getting nowhere -- getting nowhere very fast. On high-speed rail. High-speed rail would contribute significantly to the national debt and would place a heavy burden on tax payers Nix, February 9, 2011 [Kathryn, Policy Analyst for the Heritage Foundations Center for Health Policy Studies. High Speed Funding in
Presidents Budget Means More Waste of Taxpayer Dollars http://blog.heritage.org/2011/02/09/high -speed-funding-inpresident%E2%80%99s-budget-means-more-waste-of-taxpayer-dollars/

The Presidents obstinate commitment to high-speed rail reflects a complete and utter neglect to take deficit reduction seriously. Heritages Ronald Utt writes that a high-speed rail program would create perpetual massive government subsidies and larger budget deficits and additional burdens imposed on hard-pressed state governments, which will be required to match the perpetual federal subsidies to build the system. Funding has already been rejected by new governors in Wisconsin and Ohio, who campaigned against the costly projects, which would initially receive partial funding from Washington but would ultimately place a heavy burden on both federal and state taxpayers. Said Florida Governor Rick Scott: Over the last few years, Florida accepted one time hand-outs from
the federal government. Those temporary resources allowed state and local governments to spend beyond their means. There wa s never any reason to think that Florida taxpayers could afford to continue that higher level of spending once the federal hand-outs were gone. Despite its cost, high-speed rail will be ineffective at achieving its goals, if Europes experiences are any

indicator. High-speed rail is expected to reduce auto and air travel, but in Europe, the trend is actually the opposite: Despite huge government subsidies, travelers are opting more and more to take non-subsidized and less expensive

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<Your Name> <Tournament Name> forms of travel. Per capita spending on rail alone in six European countries was comparable to the United States entire transportation budget, yet, says Utt, these countries received a poor return on their money given that more than 90 percent of
passengers in these countries chose other travel modesmostly autodespite the subsidies. Moreover, Utt cites the U.S. Department of Transportations Inspector Generals finding that reducing travel time between major East Coast cities by 30 minutes would co st $14 billion but only reduce auto transportation by less than 1 percent. Experiences around the globe show that high-speed rail is unsustainable and requires large and perpetual government subsidies. The gains of high-speed rail would be minimal, affecting only a small portion of the population. The United States simply cannot afford such a project right now. If President Obama is serious about investing in Americas future, he should focus on cutting existing programs that are unaffordable and inefficie nt rather than adding another to their ranks.

Link: HSR is just a terrible idea and investmentlike, Vietnam status White 2012 (Richard White. January 27, 2012. The Margaret Byrne Professor of American History at Stanford University author of
"Railroaded: The Transcontinentals and the Making of Modern America." A Waste of Money, for Years to Come. http://www.nytimes.com/roomfordebate/2012/01/26/does-california-need-high-speed-rail/high-speed-rail-is-a-waste-of-money-for-decadesto-come) The debate over high-speed rail in California is not about Californias future, or the promise of new technologies, or the American Way. Californians are debating whether to build a very expensive railroad line between Los Angeles and San Francisco. We shouldnt

build it. At best it will not solve any problems for decades to come, and at worst it will become an expensive problem itself. It will become a Vietnam of transportation: easy to begin and difficult and expensive to stop.
In a state dismantling its education system and watching its existing infrastructure collapse, it is criminally profligate to build a system that will drain revenue from more-needed projects. This is like building a state-of-the-art driveway while your house collapses. Highway 5 between Los Angeles and San Francisco is miserable, but it is not the key transportation problem in California. For highspeed rail to work, it needs to get people out of cars, but the project doesnt touch the huge mass of traffic, which swirls daily in the Los Angeles and San Francisco metropolitan areas. High-speed rail between Boston and Washington, D.C., connects trains with functioning public transportation systems. This is not true in Los Angeles nor in large parts of the Bay area. The projected cost of high-speed rail has risen from roughly $33 billion to $100 billion or more even as the promised system has shed Sacramento and San Diego. There is so far no private investment in the project and no federal contribution beyond the initial grant. The state auditor is only the latest to slam the California High-speed Rail Authority as a tool of its consultants and contractors. By all signs, California taxpayers will take the risks; private corporations will reap the gains; and California will either be left with what it can now fund a white elephant running between Merced and Bakersfield or a monstrous leech of a project sucking away needed revenue.

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Deficits Bad
High deficits cause economic collapse. Bergsten, 2009. [Fred C., Nov. "The Dollar and the Deficits: How Washington Can Prevent the Next Crisis." Iie.com. Peterson Institute
for International Economics, <http://www.iie.com/publications/papers/paper.cfm?ResearchID=1312>. Fred C. Bergsten is director of the Peterson Institute for International Economics since 1981 and is the most widely quoted think-tank economist in the world.[ Even as efforts to recover from the current crisis go forward, the United States should launch new policies to avoid large external deficits, balance the budget, and adapt to a global currency system less centered on the dollar. Although it will take a number of years to fully implement these measures, they should be initiated promptly both to bolster confidence in the recovery and to build the foundation for a sustainable US economy over the long haul. This is not just an economic imperative but a foreign policy and national security one as well. A first step is to recognize the dangers of standing pat. For example, the United States' trade and current account deficits have declined sharply over the last three years, but absent new policy action, they are likely to start climbing again, rising to record levels and far beyond. Or take the dollar. Its role as the dominant international currency has made it much easier for the United States to finance, and thus run up, large trade and current account deficits with the rest of the world over the past 30 years. These huge inflows of foreign capital, however, turned out to be an important cause of the current economic crisis, because they contributed to the low interest rates, excessive liquidity, and loose monetary policies thatin combination with lax financial supervisionbrought on the overleveraging and underpricing of risk that produced the meltdown. It has long been known that large external deficits pose substantial risks to the

US economy because foreign investors might at some point refuse to finance these deficits on terms compatible with US prosperity. Any sudden stop in lending to the United States would drive the dollar down, push inflation and interest rates up, and perhaps bring on a hard landing for the United Statesand the world economy at large.
But it is now evident that it can be equally or even more damaging if foreign investors do finance large US deficits for prolonged periods. US policymakers, therefore, must recognize that large external deficits, the dominance of the dollar, and the large capital inflows that necessarily accompany deficits and currency dominance are no longer in the United States' national interest. Washington should welcome initiatives put forward over the past year by China and others to begin a serious discussion of reforming the international monetary system. To a large extent, the US external deficit has an internal counterpart: the budget deficit. Higher budget deficits generally increase domestic demand for foreign goods and foreign capital and thus promote larger current account deficits. But the two deficits are not "twin" in any mechanistic sense, and they have moved in opposite directions at times, including at present. The latest projections by the Obama administration and the Congressional Budget Office (CBO) suggest that both in the short run, as a result of the crisis, and over the next decade or so, as baby boomers age, the US budget deficit will exceed all previous records by considerable margins. The Peterson Institute for International Economics projects that the international economic position of the United States is likely to deteriorate enormously as a result, with the current account deficit rising from a previous record of six percent of GDP to over 15 percent (more than $5 trillion annually) by 2030 and net debt climbing from $3.5 trillion today to $50 trillion (the equivalent of 140 percent of GDP and more than 700 percent of exports) by 2030. The United States would then be transferring a full seven percent ($2.5 trillion) of its entire economic output to foreigners every year in order to service its external debt. This untenable scenario highlights a grave triple threat for the United States. If the rest of the world again finances the United States' large external deficits, the conditions that

brought on the current crisis will be replicated and the risk of calamity renewed. At the same time, increasing US demands on foreign investors would probably become unsustainable and produce a severe drop in the value of the dollar well before 2030, possibly bringing on a hard landing. And even if the United States were lucky enough to avoid future crises, the steadily rising transfer of US income to the rest of the world to service foreign debt would seriously erode Americans' standards of living. Hence, new record levels of trade and current account deficits would likely levy very heavy costs on the United States whether or not the rest of the world was willing to finance these deficits at prices compatible with US prosperity. Washington should seek to sharply limit these external deficits in the
futureand it is encouraging that the Obama administration has indicated its intention to move in that direction, opting for future US growth that is export-oriented, rather than consumptionoriented, and rejecting the role of the United States as the world's consumer of last resort. Balancing the budget is the only reliable policy instrument for preventing such a buildup of foreign deficits and debt for the United States. As soon as the US economy recovers from the current crisis, it is imperative that US policymakers restore a budget that is balanced over the economic cycle and, in fact, runs surpluses during boom years. Measures that could be adopted now and phased in as growth is restored include containing the cost of medical care, reforming Social Security, and enacting new taxes on consumption. The US government's continued failure to responsibly address the fiscal future of the United States will imperil its global position as well as its future prosperity. The country's fate is already largely in the hands of its foreign creditors, starting with China but also including Japan, Russia, and a number of oil-exporting countries. Unless the United States quickly achieves and maintains a sustainable economic position, its ability to pursue autonomous economic and foreign policies will become increasingly compromised

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Credit Downgrade Bad

CREDIT DOWNGRADE HAS EFFECTS ON THE GLOBAL ECONOMYALL THE WORLDS ECONOMIES HAVE INEVITABLY BECOME INTERTWINED. AND, DOWNGRADE OF US CREDIT CAUSES FIGHTING OVER OIL PRICE HIKES. CREDIT DOWGRADES KILLS US HEG BY CAUSING A TRANSITION AWAY FROM THE DOLLAR AND MESSING UP RELATIONSFISCAL DISCIPLINE KEY VANDERBRUCK 11 [Tobias, Exec. Writer at oil-price.net, Impact of Credit Downgrade on Oil Prices, Sept. 13, 2011]
Standard and Poor's (S&P) credit rating for the US was pulled down a notch to AA+ from AAA in August 2011 for the first time in the history of the rating system. The agency had expressed concerns about the nation's ability to manage its debt and hinted that the Obama administration should pull up its socks in this matter. The move was not a surprise to many since the agency had made it abundantly clear that downgrading was a possibility if remedial measures were not implemented. The fact that the downgrade occurred so early, was definitely surprising. In the aftermath, US Senators are rushing to bring in austerity measures at the earliest in the hope of getting this move revised. The S&P downgrading of America's credit rating, as well as the rumors of a possible credit

downgrade in Europe as well has had a far reaching impact on global markets and economies. The price of crude oil is no exception to this and fell nearly twenty percent in the period following the S&P move . It touched the lowest levels in almost eight months
in the wake of the announcement. Traders chose to exit from the commodity and turned towards other lucrative investments such as gold and Treasury bonds. Brent was hovering around $100 and WTI was below $80 in the immediate aftermath. This was on fears that the US market might sink into recession very soon. The more than five percent drop seen in the Dow Jones did nothing to allay fears. On the positive side, lower crude prices will translate into cheaper gas at the pump. It will even mean cheaper airline tickets and lower rates of transport too. However, when faced with a grim economy people are likely to cut corners. It is the fear of the country's debt spiraling out of control which has brought down oil prices. Stock prices are an indication of economic confidence and with these plunging, oil has also immediately gone down nearly twenty percent. By contrast, some leading financial institutions have expressed confidence in oil price stability in the medium term. They claim that oil will touch $130 in a year's time but considering the current situation it seems a risky bet. The demand for oil, which continues unabated in countries like China and other developing markets, is expected to support prices. Despite the uncertainties in the market, the price of crude oil continues to be higher than the $71.65 it touched 12 months ago. The destinies of oil and

the dollar are closely intertwined with the US credit standing. So, any kind of aspersions cast on the well-being of the country's economy or its ability to cover debts can prove disastrous and bring about a domino effect . Any major development in the
US, which is the world's largest oil consumer, inevitably reflects on the oil trade. Besides the US, quite a few European nations are going through a significant financial crisis. The shrinking supply of oil is one factor influencing steep price rises. Oil is increasingly being seen as a viable investment opportunity and this is the other reason why prices fluctuate in a volatile manner. The reason for it being so lucrative is that it is a precious commodity. To make things worse, the successive Federal Reserve stimulus plans have flooded investment banks with cash to "invest" in the economy. And to an investment banker sitting on a lot of cash, crude oil is a very attractive investment right now. Aside from the "stimulus" money, oil's rise will be amplified by retail investors (as usual late at the game) who are pulling cash out of the market en masse and investing into hard assets. Make no mistake, the credit downgrading equals a downgrade of the dollar.

And this downgrade of the dollar, previously considered a refuge currency, could not come at a more inopportune time. Many oil-producing nations such as Lybia and Syria are in a state of turmoil and looking for ways to regain political stability. Other Arab nations such as Saudi Arabia, not yet affected by the "Arab Spring" are doing all they can to avert unrest that could cascade into a civil war like in Lybia. Since all these nations' budgets rely almost exclusively on oil revenue, the petrodollar does not present itself in a favorable light to these oil-rich nations. Consequently, several major oil producing nations have announced their plans to move away from the dollar and instead accept currencies such as the Euro and the Yuan. Iran, which provides 12% of China's oil opened an oil bourse on Kish Island which trades its prized high grade oil strictly in Yuan and Euros (no dollars). This is not helping the dollar's situation in any way. If major oil producing nations begin moving away from the dollar, it will not be long before others follow suit. In the meantime, previously US-friendly governments in the Middle-East are tumbling one after the other. New flags emerge, stamped with the crescent and the moon, symbols of fundamentalist Islam. For example, Libya's new National Transitional Council, upon the overthrow of Muammar Gaddafi immediately decreed a new judicial system based on Shari law. Following the "Arab Spring", pan-Islamic governments are gradually taking over smaller oil producing nations and these "mini-Irans" will likely stop accepting dollars for their coveted oil . Newly minted governments, eager to bring stability and assess their leadership will drop the dollar because of the negative image of its tie to previous governments. Over time this will result in a lower demand for the greenback and greatly reduce its purchasing power. The price of crude oil in dollars will spiral upwards while the credit rating continues to plummet. History indicates that very few nations, who had their credit rating downgraded from AAA, have ever been able to recover it. And those who have managed to recapture their former glory took anywhere between a decade to two decades of fiscal discipline to achieve this. But since fiscal discipline is not even on the radar screen of the US government it is safe to predict that the US credit rating is headed even lower. Today oil is traded in dollars so for every gallon of gas, say, a chinese motorist buys, he first has to change his chinese currency into US dollars then buy crude oil with these dollars. This not a very convenient arrangement to say the least for anyone but the dollar. The term "petrodollar" denotes this unique status of the US dollar: while no other currency is any longer backed by something of value like gold, the almighty dollar is the only currency backed by crude oil, "black gold". But once oil stops trading in dollars the world's need for the greenback will be strongly reduced if not eliminated. When this happens, expect the value of the dollar to decline sharply, the price of crude oil denominated in dollars to skyrocket and the US credit rating to continue its journey down the rest of the alphabet.

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A2 Stimulus
Link-The plan would face massive budget overruns, short term stimulus triggers long term economic impacts and subsumes their link turns-infrastructure spending isnt good stimulus Mitchell et al 11(September 11, WOULD MORE INFRASTRUCTURE SPENDING STIMULATE THE ECONOMY?,Veronique de
Rugy and Matthew Mitchell professors at the Mercatus Center at George Mason University,http://mercatus.org/sites/default/files/publication/infrastructure_deRugy_WP_9-12-11.pdf)PA 6/29/12 Four years into the deepest recession since World War II, the U.S. economy expanded at a rate of only 0.7 percent in the first half of 2011. This means that the economy is growing at a slower pace than the population and that capita output continues to fall.2 In response, the president has announced a plan for yet more deficit-financed stimulus spending.3 Like the two previous stimulus bills, this one

focuses on infrastructure spending. The presidents plan is rooted in the belief that stimulus spending and deeper deficits will give the economy the lift it needs to create more jobs. The hope is that, eventually, the economy will grow fast enough to allow the government to begin to pay down the national debt. There are three problems with this approach. First, despite the claims of stimulus proponents, the evidence is not at all clear that more stimulus would be helpful right now. Second, even if one adheres to the idea that more government spending can jolt the economy, spending particularly infrastructure spendingcannot be implemented in the way Keynesians say it ought to be. This greatly undermines its stimulative effect. Third, while no one disputes the value of good infrastructure, this type of spending typically suffers from massive cost overruns, waste, fraud, and abuse. This makes it a particularly bad vehicle for stimulus. In sum, further stimulus would be a risky short-term gamble with near-certain negative consequences in the long term. Government spending crowds out private investment. Edwards, 2011 [Chris, 26 July. "Reducing Deficits by Cutting Spending." The Cato Institute.
<http://www.cato.org/publications/congressional-testimony/reducing-deficits-cutting-spending>. Chris Edwards is a director of tax policy studies at The Cato Institute] Lets take a look at how federal spending damages the economy over the long -run. Federal spending is financed by the

extraction of resources from current and future taxpayers. The resources consumed by the government cannot be used to produce goods in the private marketplace. For example, the engineers needed to build a $10 billion government highspeedrail line are taken away from building other products in the economy. The $10 billion rail line creates government-connected jobs, but it also kills at least $10 billion worth of private jobs. Indeed, the private sector would actually lose more than $10 billion in this example. That is because government spending and taxing creates deadweight losses, which result from distortions to working, investment, and other activities. The CBO says that deadweight loss
estimates range from 20 cents to 60 cents over and above the revenue raised.15 Harvard Universitys Martin Feldstein thinks that deadweight losses may exceed one dollar per dollar of revenue raised, making the cost of incremental governmental spending m ore than two dollars for each dollar of government spending.16 Thus, a $10 billion high-speed rail line would cost the private economy $20 billion or more. The government uses a leaky bucket when it tries to help the economy. Former Council of Economics Advisors Chairman, Michael Boskin, explains: The cost to the economy o f each additional tax dollar is about $1.40 to $1.50. Now that tax dollar is put into a bucket. Some of it leaks out in overhead, waste, and so on. In a well-managed program, thegovernment may spend 80 or 90 cents of that dollar on achieving its goals. Inefficient programs would be much lower, $.30 or $.40 on the dollar.17 Texas A&M Professor Edgar Browning comes to similar conclusions about the magnitude of the governments leaky bucket: It costs taxpayers $3 to provide a benefit worth $1 to recipients .

No link turns-your authors agree-plan is a terrible stimulus in this economy Mitchell et al 11(September 11, WOULD MORE INFRASTRUCTURE SPENDING STIMULATE THE ECONOMY?,Veronique de
Rugy and Matthew Mitchell professors at the Mercatus Center at George Mason University,http://mercatus.org/sites/default/files/publication/infrastructure_deRugy_WP_9-12-11.pdf)PA 6/29/12

A rapid increase in stimulus spending makes things worse: There is an inherent tradeoff between speed and efficiency. Policy makers need time to weigh the merits of a project, structure requests for proposals, administer a fair bidding process, select the best firms, competently build the project, and impartially evaluate the results. Quite understandably, economists have found that when funds are spent quickly, they are not spent wisely.39 In October 2010, President Obama conceded that, in fact, Theres no such thing as shovel -ready projects.40 In sum, there are strong reasons to suspect that stimulus is not likely to be implemented as Keynesian theoreticians say it ought to be. This means that

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even by Keynesians standards, the newest round of stimulus is likely to fail. Tellingly, the political economy problems that plague the implementation of stimulus were actually significant enough to make Lord Keynes himself a skeptic.

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Infra Bubble
Feeding and inflating this infrastructure bubble now locks us between a rock and a hard place in the future: either continue to inflate the bubble with excess deficit-financed spending-which leads to inflation, weakens the economy, and destroys investor confidence- or face an economic crash as the bubble bursts. The affirmative puts us between a rock and a hard place. Deng, 2012. [Boer, 22 Mar. "Will Beijing's Political Turmoil Burst China's Economic Bubble?" Tnr.com. The New Republic, Web.
<http://www.tnr.com/article/world/101794/china-economy-bubble-politburo>.] This over-investment has brought about what some have termed

the mother of all bubbles. Redundant infrastructure, empty luxury apartments, and half-completed commercial projects sit everywhere in China, with more
popping up for the benefit of the developers and politicians involved. Pegging its currency t o the dollar and keeping interest rates low created perfect conditions for a bubble around 2005 to 2007, Edward Chancellor, an authority on financial bubbles and author of Devil Take the Hindmost, told me. Then, massive stimulus in response to the global financial crisis in 2009the extension

of easy creditreally made it possible for the bubble in real estate and infrastructure, especially, to grow. Warning signs of overheating have been steadily emerging. Chancellor cites data from Goldman Sachs suggesting that Chinas total amount of credit has ballooned to 190 percent of its GDP. According to Shih, many of the investments this credit is financing have very low, and even negative protability, even in the medium to long run. That reality now seems to be registering: Housing prices in major cities have fallen this year, and so has the rate of deposits into
state-owned banks, which means the money that has served as the basis for investment loans is drying up. In recent months, there has also been a decline in the foreign reserves at the Peoples Bank of China, an indication that capital might be leaving the country. But the

trouble with bubbles is once they are inflated, you must carry on with inflating them, Chancellor says, because if investment stops growing, you get a contraction of credit and falling asset prices. To keep things going, it seems that banks are now making loans to each other and effectively expanding the money supply I suspect that the endgame is the breakdown of the Chinese credit system,; but this, in turn, drives up the threat of inflation. Chancellor adds. Increasing infrastructure investments through debt financing and increased private investment is causing the growth of an infrastructure spending bubble. Newsmax, 2006. [30 Nov. "S&P Warns of Global Infrastructure Bubble." Newsmax.com. Web.
<http://archive.newsmax.com/money/archives/articles/2006/11/30/084727.cfm>.] "It is clear that, as a result of rampant demand, the infrastructure sector is in

danger of suffering from the dual curse of overvaluation and excessive leverage -- the classic symptoms of an asset bubble similar to the dotcom era," Michael
Wilkins, managing director of S&P's European infrastructure finance group, said in the report. Wilkins blamed cheap financing and private-equity interest as well as a relatively slim range of potential targets for the rise in asset prices and leverage. S&P also noted that the arrival of private-equity funds, which accounted for 50 percent of the deals done in 2006, had raised a number of concerns.These included a decline in credit quality as growing levels of debt are used to finance purchases, and a possible conflict with governments or regulators that are trying to protect the interests of the consumer. " As infrastructure funds enter ferocious bidding wars, the valuation and debt multiples are rapidly increasing, while equity shares are becoming ever slimmer, " it said. S&P said the acquisition of London City Airport by a consortium of American International Group Inc, General Electric Capital Corp and Credit Suisse was priced at a debt-to-EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio of more than 20 times. Another growing issue was the adoption of increasingly aggressive balance sheets by potential target infrastructure assets in an attempt to stave off predatory private-equity investors. "Talk to anyone in the industry and they all agree that we are getting to a stage

where the whole market is overheated." Excessive infrastructure investments relying on state funding hurt the economy, increase deficit spending and make the investments unprofitable as the bubble bursts from excessive spending and revenue loss, the China bubble proves. Staley, 2012 [Samuel R, 19 Apr. "Does China Have a Transportation Bubble?" Realclearmarkets.com. Real Clear Markets, Web.
<http://www.realclearmarkets.com/articles/2012/04/19/does_china_have_a_transportation_bubble_99625.html>.] Compounding these potential inefficiencies in transportation finance is the continued reliance by provincial governments on state-owned banks and tollway authorities to manage, operate and finance these facilities. While the Chinese enterprise model, like independent toll agencies in the U.S., has many virtues compared with conventional transportation bureaucracies, it is largely insulated from the discipline and transparency of the private market. The benefit of private capital is to shift risk from the public sector to the private sector and institutionalize incentives for lowering costs and achieving efficiency. By excluding foreign and truly private capital, the Chinese risk

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relying too much on state-owned enterprises that are already widely recognized as a drag on the broader economy. A harbinger of what might come may not be as much in highway finance as in mass transit. China is also on track to build 176 urban rail lines spanning 7,254 miles by 2020 with a price tag of about $470 billion. Twelve rail transit systems are in operation, another 17 are under construction, and 18 more are planned. Most cities now adopt low average fares that don't adjust by the level of use or ability to pay. In an effort to dramatically increase ridership, Chinese cities are significantly underpricing fares when they could be embracing technology that allows them to generate more revenue from customers who can afford to pay. Of course, Western systems, for the most part, don't operate on this system either. But China is in a unique position where it can adopt existing technology to use fare levels to optimize the use of its transit and road networks while generating more revenue through this kind of variable pricing strategy. Ironically, China built its infrastructure backbone by relying on market-based approaches, including tolling, public-private partnerships, and foreign capital. This transportation infrastructure will be crucial to its long-term growth and success, but only if the investments are in the right place and managed at peak efficiency. If China continues to retreat into a more Western-style tax funding system that ignores the virtues of market-based pricing and finance, its investments may well turn into an economic burden rather than a smart investment that sustains economic growth over the long term.

State-funded infrastructure investment is reminsicient of the investment and lending schemes of Chinese banks for infrastructure development, which resulted in overinvestment and a drop in productivity. [Run in addition to arguments attacking the inefficient and unbalanced returns on the aff plan-i.e. USFG funded investment is and imprudent investment that isnt regulated by the market.] Shenai, 2011. [Neil K, Instructor of International Economics at the Johns Hopkins School of Advanced International Studies. "3 Fault
Lines Running through China's Economy." Cnn.com. Cable News Network, 21 Apr. 2011. Web. <http://globalpublicsquare.blogs.cnn.com/2011/04/21/chinas-economic-fault-lines-1-its-infrastructure-bubble/>.

In the aftermath of the global financial crisis, China forced its state-run banks to lower lending standards and make as many loans as possible to support infrastructure and real estate development, which according to various estimates accounts for nearly 20% of the Chinese workforce. Although vast infrastructure investment helped China grow at near double-digit rates, their current spending spree illustrates why its sometimes possible to have too much of a good thing (for an example of Chinas infrastructure spending run amok, see this see this fine documentary on Chinas ghost cities). Because
Chinas banks are under state control, they do not face the same liquidity and credit risks as their Western counterparts, as they are forever-backstopped by Chinese taxpayers (at least the Chinese admit that their financial institutions are government-sponsored entities). This might pay off handsomely in the near-term, as millions of Chinese are put to work building multi-unit apartment buildings, constructing state-of-the-art airports, and laying concrete for highways. Still, Chinas domestic lending scheme is Ponzi finance. Consider its financial circularity: Because of their political control, Chinese banks must lend to ever-more dubious projects for ancillary, non-business reasons. When these investments fail to yield an adequate rate of return, these loans drop in

value. To maintain bank lending and thus high levels of employment, China buys up these non-performing loans from the banks and puts them into separate, state-run entities of which the Chinese government is the ultimate creditor. This bank balance sheet cleansing begins the process of lending anew, leading to more loans, more speculation, and ultimately
greater defaults. But because they are the ultimate backstop to this speculative lending, the Chinese government is really the sucker in its own Ponzi scheme. Even though Chinas airports and trains are some of the best in the world, countries can still overinvest in productive sectors. In the West, we have markets that help reign in the excesses of imprudent investments (think the bursting of the technology bubble in 2000). Can we really trust the Communist Party to make these same hard decisions, when social order and the Party's hold on power depend on populist lending?