Spending[1] | Federal Reserve System | Recession

Economy DA

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spending 1nc ................................................................. 2 U- economy strong/not that bad....................................... 4 U- brink of recession....................................................... 5 U- fiscal discipline .......................................................... 6 link- pork snowball ......................................................... 7 link- emissions reductions ............................................... 8 bubble link .................................................................... 9 i/l- us k/t world economy ...............................................10 AT: Economy = resilient .................................................11 aff- n/u- econ low .........................................................12 aff- fiscal discipline = n/u ...............................................13 aff- turn- bubble spending ..............................................14 Aff- Econ = resilient.......................................................16


Economy DA
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A. UNIQUENESS—SOME ECONOMIC PAIN IS INEVITABLE BUT ITS QUESTION OF WHETHER WE CAN WEATHER THIS STORM Spengler, 2k8 [“How to stop the Great Crash of '08” Asia times, July 1, http://www.atimes.com/atimes/Global_Economy/JG01Dj07.html]

Today's crisis, by contrast, threatens the solvency of households. After a quarter-century of taking on debt, home prices are collapsing. Americans, moreover, have saved nothing during the past decade, borrowing an annual sum from foreigners that amounted to $1 trillion in 2007. The crisis of household solvency became a banking crisis through the collapse of the market for lower-quality (subprime) mortgages, and threatens to metastasize into something much broader. That is the message the
markets delivered during June.

There is no way to avoid some economic pain. America is in a recession and will stay in a recession for a while. The only question is whether it will come out of the recession in one piece.
Bush counters that

the budget plan - which includes cuts to such traditional sacred cows such as farm subsidies

and other aid to rural areas - are needed in order to bring the budget under control. Republican chairmen of the Senate Appropriations Committee and the Agriculture Committee, however, are saying that the cuts won't be passed by their panels. The president also has run into opposition from both members of Congress and state officials over his plan to scale back Medicaid. For his part, Tennessee Gov. Phil Bredesen has said that changes have to be made in the Medicaid system in order to prevent it from bankrupting the states, which have been unable to keep up with cost overruns of providing public health services.

the overall national economy will benefit from the spending discipline he has put forth in his budget. But the reality of the situation is that once the government starts spending on something, it's nearly impossible to stop it because too many people have a vested interest in its continuance.
The president says

THE PERCEPTION OF THE BUDGET IS KEY – LOSS OF CONFIDENCE IN THE BUDGET CRIPPLES THE US ECONOMY Bergsten 04 (C. Fred, director of the Institute for International Economics, "The Risks Ahead for the World Economy," Economist, 9/9, http://www.economist.com/opinion/displayStory.cfm?story_id=3172404)

Rubin, former secretary of the Treasury, also stresses the psychological importance for financial markets of expectations concerning the American budget position. If that deficit is viewed as likely to rise substantially, without any correction in sight, confidence in America's financial instruments and currency could crack. The dollar could fall sharply as it did in 1971-73, 1978-79, 1985-87 and 1994-95. Market interest rates would rise substantially and the Federal Reserve would probably have to push them still higher to limit the acceleration of inflation. These risks could be intensified by the change in leadership that will presumably take place at the Federal Reserve Board in less than two years, inevitably creating new
Robert uncertainties after 25 years of superb stewardship by Mr Volcker and Alan Greenspan. A very hard landing is not inevitable but neither is it unlikely.


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US ECONOMIC DECLINE SPREADS GLOBALLY, UNDERMINING US LEADERSHIP AND MAKING WMD CONFLICT WITH CHINA INEVITABLE Mead 4/1/2k4 (Walter Russell, Senior Fellow @ Council on Foreign Relations, Foreign Policy, lexis)
Similarly, in the last 60 years, as foreigners have acquired a greater value in the United States--government and private bonds, direct and portfolio private investments--more and more of them have acquired an interest in maintaining the strength of the U.S.led system. A collapse of the U.S. economy and the ruin of the dollar would do more than dent the prosperity of the United States.

The financial strength of every country would be severely shaken should the United States collapse. Under those
Without their best customer, countries including China and Japan would fall into depressions.

circumstances, debt becomes a strength, not a weakness, and other countries fear to break with the United States because they need its market and own its securities. Of course, pressed too far, a large national debt can turn from a source of strength to a crippling liability, and the United States must continue to justify other countries' faith by maintaining its long-term record of meeting

a collapsing U.S. economy would inflict enormous, unacceptable damage on the rest of the world. That is sticky power with a vengeance.
its financial obligations. But, like Samson in the temple of the Philistines, power that attracts the rest of the world. Certainly, the

THE SUM OF ALL POWERS? The United States' global economic might is therefore not simply, to use Nye's formulations, hard power that compels others or soft

U.S. economic system provides the United States with the prosperity needed to underwrite its security strategy, but it also encourages other countries to accept U.S. leadership. U.S. economic might is sticky power.

How will sticky power help the United States address today's challenges? One pressing need is to ensure that Iraq's economic reconstruction integrates the nation more firmly in the global economy. Countries with open economies develop powerful tradeoriented businesses; the leaders of these businesses can promote economic policies that respect property rights, democracy, and the rule of law. Such leaders also lobby governments to avoid the isolation that characterized Iraq and Libya under economic sanctions. And looking beyond Iraq, the allure of access to Western capital and global markets is one of the few forces protecting the rule of law from even further erosion in Russia.

As China develops economically, it should gain could support a military rivaling that of the United States; China is also gaining political influence in the world. Some analysts in both China and the United States believe that the laws of history mean that Chinese power will someday clash with the reigning U.S. power. Sticky power offers a way out. China benefits from participating in the U.S. economic system and integrating itself into the global economy. Between 1970 and 2003, China's gross domestic product grew from an
China's rise to global prominence will offer a key test case for sticky power. wealth that estimated $ 106 billion to more than $ 1.3 trillion. By 2003, an estimated $ 450 billion of foreign money had flowed into the Chinese economy. Moreover, China is becoming increasingly dependent on both imports and exports to keep its economy (and its military machine) going. Hostilities between the United States and China would cripple China's industry, and cut off supplies of oil and other key commodities. Sticky power works both ways, though.

If China cannot afford war with the United States, the United States will have an increasingly hard time breaking off commercial relations with China. In an era of weapons of mass destruction, this mutual dependence is probably good for both sides. Sticky power did not prevent World War I, but economic interdependence runs deeper now; as a result, the "inevitable" U.S.-Chinese conflict is less likely to occur.


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U--- NO MAJOR ECONOMIC PRESSURES/HOLDING OFF MAJOR THREATS Reuters, 2k8 [“ Fed's Mishkin says no US wage-price spiral yet” July 2,]

Rising energy and food prices have yet to seep into U.S. core inflation or wages, while the economy will face a headwind for some time, a top Federal Reserve policy-maker said on Wednesday in dovish remarks. "The high cost of energy and other primary commodities have not led to much increase in core inflation, partly because of slackening domestic demand, and there is little evidence that these costs are feeding a wage-price spiral," Fed Governor Frederic Mishkin told a business forum here.
"The U.S. economy will be subject to substantial headwinds for some time," he said, citing an expected slow recovery from financial market stresses sparked by the U.S. subprime crisis. "Thus, growth could continue to be quite weak, though I hope it would pick up next year," said Mishkin, who is leaving the Fed on Aug. 31. He compared the current episode to the post-recession U.S. economy in the early 1990s. The Fed last week halted an aggressive campaign of interest rate cuts to shield the U.S. economy from a collapsing housing market that chilled growth and sparked a global credit crunch. In the statement accompanying its decision to hold rates at 2 percent, it also noted that inflation worries had grown, which investors took to mean that the next rate move will be upward. Mishkin faithfully echoed this caution, saying: "The latest spike up in energy and food prices has raised the upside risk to inflation and inflation expectations, which we are closely monitoring and seeking to contain." But Mishkin's remarks also showed that he remained preoccupied with the still-fragile economy, a hint that he might not be pressing for near-term policy action.

With housing construction continuing to decline and energy prices continuing to rise, risks to growth still appear, to my eyes, to be on the downside. Households face significant headwinds,"
"The economy faces challenges. he said.

U- ECON STRONG- RECENT INDICATORS GOOD Desmond, 2k8 [Maurna. “Feds Worry, U.S. Jobs Slide Steadily” July 2, Market Scan]

Recent economic indicators have been stronger than expected. Federal Reserve Chairman Ben Bernanke has made it clear that he believes the U.S. economy is on the mend, and that he'll resist lowering interest rates to stoke the economy for fears of fanning the flames of already worrisome inflationary pressures. (See "Fed Whistles In The Wind.")


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SMALL GROWTH NOW BUT WE ARE ON THE BRINK OF RECESSION AFP, 2k8 [“Paulson says US economy enduring 'rough period'” July 2, http://afp.google.com/article/ALeqM5jULwR5qGGziJG3pD5O_WrnIAX5lQ]

giant economic stimulus -- stuffed with tax rebates and backed by the administration of President George W. Bush -- had helped shore up US growth, but that the housing downturn poses a "significant" downside risk to economic momentum.
He said the

Foreclosures have soared in recent months as home sales and property prices have continued to tumble across many parts of the United States.

The world's biggest economy posted subpar growth of 1.0 percent during the first quarter of the year, and some analysts believe the economy is on the brink of a recession.
BRINK- US ECONOMY CAN’T LET THINGS DETERIORATE MORE Reuters, 2k8 [“ Fed's Mishkin says no US wage-price spiral yet” July 2,]

Stress in financial markets had abated from earlier extremes but conditions remain delicate, with spreads in some credit markets still high and banks in pain. "Significant strains persist. Banks are tightening their lending standards, and conditions could worsen again should the economic outlook deteriorate further," he said.
But he also warned energy and urged all central banks to be on alert. "The

In addition, Mishkin said that European growth appeared to be slowing amid their own housing market problems, and noted that central banks there had eased monetary policy considerably less" than in the United States, due to rising inflation.

commodity prices were pressing inflation in emerging economies, and

central banks in most parts of the world are at a crucial juncture. We must all be vigilant to keep inflation expectations anchored and inflation low," he said. (Reporting by Steven Scheer, writing by Alister
Bull; Editing by Gary Crosse)


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HOUSE WORKING HARD TO HOLD THE LINE ON FISCAL-D, PARTICULARLY ON ENERGY RELATED ISSUES Cash, 2k8 [Cathy. “Senate to vote on tax credit extensions again; House leaders insist on offsets” Inside Energy with Federal Lands, June 16, Pg. l/n]

House Democratic leaders have made it quite clear that the House will not consider an extenders bill that adds to our nation's already enormous debt," Senate Majority
"Once again,

Leader Harry Reid said last week. "I hope that my Senate Republican colleagues will find a way to get beyond the ideological straightjackets that have led them to oppose this important legislation." A Senate vote on the Renewable Energy and Job creation Act of 2008 (H.R. 6049) Tuesday was 10 short of the 60 needed to avoid a Republican filibuster. Senate Finance Committee Chairman Max Baucus said he plans to offer a substitute to the House bill on Monday (June 16), but maintain that measure's provisions to offset the cost of the tax credits.

any legislation to extend tax breaks for the energy industry and other sectors must include the means to pay for them. "Let me be very, very clear: The House will not vote to waive the PAYGO rule for tax extenders legislation that increases the deficit," House Majority Leader Steny Hoyer said. Even if Congress remains in session as late as November, an extenders bill from the Senate that "is not paid for will not pass" the House, the Maryland Democrat said. "I will not put it on the floor."
Citing Senate Republicans as a "roadblock" to a package of energy incentives, House leaders said Thursday that

Hoyer, who said he also spoke for House Speaker Nancy Pelosi, made the comments at a Capitol Hill news conference where he was joined by House Ways and Means Chairman Charles Rangel and Tennessee Democrat John Tanner of the House's fiscal conservative "Blue Dog Coalition." The House passed the bill May 21. Hoyer sent a letter signed by more than 100 House members to Senate Republican Leader Mitch McConnell of Kentucky and Reid, a Nevada Democrat, reiterating the House position.

"The House will not pass this legislation if the Senate strips the offsets from the package," the letter said.
"Continued opposition to the reasonable offsets for this legislation will result in millions of American families and businesses being denied tax relief."

AMT PROVES FISCAL D Russell, 2k8 [Gail, Chaddock Staff writer of The Christian Science Monitor, June 30, 2008, Pg. 25, Congress's spending goes unchecked, with more likely, Christian Science Monitor]

Congress is also on track to consider a package of tax extenders, including a fix for the Alternative Minimum Tax that is expected to hit some 21 million taxpayers filing 2008 tax returns next year. On Wednesday, the House approved a $62 billion AMT fix, including tax increases for hedge-fund managers and the oil and gas industry to offset the cost of the bill. The bill passed 233 to 189 but faces strong
opposition from Senate Republicans, who have the votes to hold up the legislation until the offsets are removed.


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THE PLAN’S SPENDING WILL SNOWBALL – IF PORK-BARREL SPENDING COMES BACK ON THE AGENDA, IT WILL RUN OUT OF CONTROL Gazette, 4/29 2007 [“Licking their chops,” http://www.gazette.com/opinion/oil_21761___article.html/earmarks_congress.html]

Congressional Democrats did an admirable job of purging pork barrel projects — also called earmarks — from spending bills that were left unfinished when Republicans were ousted from power last fall. They
had to do something, given all their campaign rhetoric about those fiscally feckless Republicans. But whether they can for long hold the line on earmarks is doubtful, given the party in power’s propensity to pork out. The true test isn’t what Democrats did right out of the starting gate, when they knew the American people were watching, but how they will operate over the long haul, when the public’s anger over earmarks subsides and attention shifts elsewhere. So far, on that front, the signals are mixed.

We were heartened to read a recent report that House Appropriations Committee Chairman David Obey, D-Wis., might try keeping fiscal 2008 spending bills pork-free. If he’s serious, and succeeds, it could mark a turning point in the war against wasteful federal spending. But success is far from certain, given the appetite most members of Congress — and their constituents — have for homestate pork.

“Eliminating (earmarks) altogether is still in the discussion stage, sources said, but the prospect has triggered widespread concern over the potential for another earmark-free fiscal year,” CongressDaily reported last week. Obey is feeling pressure not just from Democrats looking to cash in on majority status, but from Republicans who’ve made a clean break from the party’s fiscally conservative roots. During a recent meeting, House Agriculture Appropriations Subcommittee ranking member Jack Kingston, a Republican from Georgia, said the fight against earmarks may have gone too far. “I think that we have worked ourselves into a frenzy on the subject and when that happens Congress historically overreacts,” Kingston said. If Democrats want bipartisan backing for their bills, they’ll have to grease the skids with the accustomed giveaways, he warned. “The problem is you need Republicans to pass the bill and Republicans need their pork-barrel projects the same way Democrats always did,” Kingston said. That’s one of the most candid admissions of how Washington really works that we’ve heard — at least from a sitting member of Congress. And it’s nauseating. If Republicans ever want to regain credibility as deficit hawks they ought to keep Kingston and his ilk under wraps. Many Democrats also hope the aversion to earmarks is short-lived, no doubt. And it has lobbyists in a tizzy. One of them told CongressDaily that eliminating earmarks from House spending bills would “run this train right into an embankment.” But that’s one trainwreck the taxpayers who fund this spoils system might like to see. Obey probably is just toying with the idea. In March, for instance, we read that he was entertaining requests from colleagues to push back a deadline for adding fiscal 2008 earmarks. Apparently, many members are confused by new House rules requiring that they disclose their sponsorship of a pork project and declare that neither they nor their spouse stands to financially benefit from it. This suggests to us that the new rules aren’t a serious impediment to porking out, but simply a way for House Speaker Nancy Pelosi and other Democrats to seem to be doing something about it until the storm blows over. Trying to shame the shameless is futile. “The way this place works, I wouldn’t be surprised if in the end we didn’t want to put any earmarks in,” Obey said. “I can’t tell you if we’re going to have earmarks or not until I see what the hell they look like, until I see what mood the House is in, what mood the Senate is in.

If such decisions are made based on the “mood” of members, and Obey and other leading Democrats don’t impose fiscal discipline from above, pork will be back on the congressional menu later this year, and in a very big way.


Economy DA
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REDUCING EMISSIONS JACKS THE ECONOMY--- MULTIPLE REASONS Samuelson, 2k8 [Robert. “Let's Just Call It 'Cap and Tax'” Newsweek, June 9]

If we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear power don't automatically substitute. If the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast
This is mostly make-believe. $135-a-barrel oil or the disastrous effects of corn-based ethanol on food prices.

Emission reduction programs would devastate our economy Bethel – 1996 (J. David, The Freeman, “Global Warming: Not an Immediate Problem,” December, vol. 46, no. 12, www.libertyhaven.com/politicsandcurrentevents/environmentalismorconservation/globalwarming.shtml, Downloaded on 7-20-2004) Dr. Alan S. Manne of Stanford University conducted a study of typical abatement proposals intended to stabilize carbon emissions between 1990 and 2000, reduce them to 80 percent of this level by 2010, and stabilize them thereafter. According to Dr. Manne's findings in "Global Carbon Dioxide Reductions-Domestic and International Consequences," priceinduced energy conservation and shifts to low-carbon fuels would result in annual losses ranging from 1 percent of the U.S. gross domestic product to nearly 2.5 percent of our GDP. Dr. Manne's basic conclusions have received support in studies conducted by Dr. Lawrence Horwitz of DRI/McGraw Hill. Dr. Horwitz reported in "The Impact of Carbon Dioxide Emission Reductions on Living Standards and Lifestyles" that efforts to reduce greenhouse gas emissions to 1990 levels by 2010 through the use of carbon taxation would reduce U.S. GDP by 2.3 percent, or $203 billion. Dr. Horwitz discovered additional problems with near-term emissions- abatement programs. He predicts that 89 percent of U.S. consumption categories would be affected negatively by the carbon tax, with 40 percent of the total energy-cost increases falling directly on households. The balance of the increases would be borne by industry, then passed along to consumers. According to Horwitz, higher costs and lessened demand would spread damage throughout our economy. Real business fixed investment would decline $56 billion annually by 2010. Real disposable income levels would drop $75 billion in 1992 dollars by 2010. These developments would lead to severe job losses. Dr. Horwitz estimates the loss of more than 500,000 jobs per year between 1995 and 2010, with 1,000,000 jobs lost two years after the tax was fully implemented. The Manne study of global C02 reductions also reveals that restrictive approaches to limit carbon emissions would hinder our international competitiveness in such basic industries as chemicals, steel, aluminum, petroleum refining, and mining. He contends further that the U.S. coal-exporting industry would be put out of business, and severe strains would be placed on important trade pacts like NAFTA and GATT. ****NOTE: LOOK IN THE ECONOMY DA FROM THE NUCLEA POWER AFF STARTER PACK FOR NUCLEAR POWER COSTLY CARDS AND READ A COUPLE OF THEM****


Economy DA
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the Federal Reserve is a part of the U.S. government. And far from combating bubbles, government agencies through the years have helped start, perpetuate, and prolong them. When an industry becomes a juggernaut (dot-com, real estate, alternative energy), the momentum in Washington always weighs in favor of helping the bubbled interest with more subsidies, more tax credits, more cheap money. At times, the bubble sectors can hijack government policy. In February
While an independent agency, 1929, Charles Mitchell, the CEO of National City bank and a governor of the New York Federal Reserve, helped put the kibosh on the New York Fed's efforts to cut off speculative lending on stocks by raising interest rates. As the Fed considered raising rates, William Crapo Durant, the founder of General Motors, bought airtime on CBS radio and proclaimed: "Let the Federal Reserve Board keep its

even as there are signs of a bubble in alternative energy, some of the venture capital money plowed into the sector is deployed to lobby for more government support.
hands off business." Today,

Washington policymakers are generally eager to help prolong the bubble sectors because they become significant engines of growth. Asha Bangalore of Northern Trust found that between November 2001 and October 2005, housing and real estate accounted for 36 percent of U.S. private-sector payroll job growth. Advocating policies to deflate bubbles would be like the coaches tripping up running backs as they're sprinting for the end zone. At a time when private sector money is flowing into cleantech at record pace, the only thing the three remaining presidential candidates can agree on is the need for the government to invest in green-collar jobs to revive the economy, ensure national security, and clean up the environment. There's not much the Fed could do to slow this biodiesel-powered train. Finally, the Federal Reserve is an organization much like any other—run by human beings with fallible judgment, driven by

In bubbles, skeptics are always marginalized while the promoters are anointed as seers. And when a bubble gets loose, it infects every institution: banks, the media, and, yes, the Federal Reserve. The Fed, in the person of Alan Greenspan, failed to diagnose the Internet bubble accurately, and it misjudged the housing bubble, too. The Fed, in the person of Ben Bernanke, failed to see the credit mess coming. And once that crisis hit, the Fed failed to accurately gauge its scope and depth. When the party really gets going, we all drink from the same punch bowl.
consensus, and less than congenial for contrarians.

[MORE EVIDENCE] THE FEDERAL RESERVE CAN’T STAVE OFF BUBBLES Gross, 2k8 [Daniel. “Money Culture” May 20, http://www.newsweek.com/id/137912] Interesting stuff. But history has shown that the Fed doesn't possess the right tools, the right mentality, or the right personnel to consistently stave off bubbles. Over the decades, we've seen bubbles come and go—telegraph companies

and railroad stocks in the 19th century; stocks and consumer credit in the 1920s; dot-com/telecommunications in the 1990s; and real estate and a proto-bubble in alternative energy in this decade. All have created significant damage, and almost all have left significant good behind, as I've argued. (I won't sink to the self-promoting depths of boring you with the argument of my book, Pop! Why Bubbles Are Great for the Economy, which is now available in Chinese and German.) Bubbles happened when the United States didn't have a central bank (the 19th century), when the Fed was an immature institution still getting its legs under it (the 1920s), and when it was at the height of its powers and public esteem (the Greenspan years).

One way might be for Federal Reserve chairs and other officials to use their credibility to talk down investors from making poor bets. But even on its best days, the market doesn't listen to reason. During a bubble? Forget about it. A bespectacled jargon-dispensing economist standing astride the rails and yelling stop isn't likely to have much effect on a runaway locomotive. Alan Greenspan gave his famed irrational exuberance speech on Dec. 5, 1996. But the Dow Jones Industrial Average
So how could the Fed stop bubbles?

and the NASDAQ ran up 82 percent and 288 percent, respectively, in the three years after the speech—before popping. Rather than talk, the Fed could act by raising interest rates to choke off speculation. This might be a useful tool if the bubble is primarily in credit—jacking up the Federal Funds rate from its 2004 low of 1 percent more quickly would certainly have forestalled the worst of the recent housing speculation—or if the bubble is being held aloft in part by stocks that speculators bought on margin, as was the case in the late 1920s. But when the bubble is in assets like railroad bonds or in telecommunications stocks, which people are buying in their cash accounts, or in ethanol plants, the Fed's ability to control short-term interest rates won't help much.

Raising rates to the point at which it would choke off speculation in an isolated area would have a harsh effect on the nonbubbly economy. Imagine chemotherapy in which a powerful toxin would destroy the cancer but
also destroy lots of healthy tissue in the process.


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"If the US were to slow significantly that would have adverse implications for the rest of the world." Such a scenario could strip one percentage point off world growth for 2003, which is expected to

be about four percent, the economist said. Sal Guatieri, global economist based in Chicago for Bank of Montreal, said that if a war in Iraq was swift, oil prices would quickly settle lower and the US economic growth pace would be slowed by just a few tenths of a percentage point in 2003. "The big risk is if you had an escalation of military action both in Iraq, in the Middle East and a prolonged war. That would likely push crude oil prices to much higher levels than we currently forecast," he said. Such an outcome could knock half a percentage point or even a full percentage point off economic growth, he said. But even that would not push the US economy into recession, Guatieri said. "To push the economy into recession -- just assume it is growing at a trend rate of three percent -- would likely require crude oil prices at least doubling, possibly tripling from current levels: going up

The effects of any US slowdown would ricochet around the world, Guatieri said. One-third of the Canadian economy depended on US consumers and businesses. Euro zone and Japanese economies would take a smaller hit but they were more fragile. Asian economies would be hurt by slower exports to the United States.
to 60 to 90 dollars per barrel on a sustained basis."


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Sound and sustainable national finances—with fiscal deficits kept at manageable levels over a sustained period of time— are vital to ensuring that the American economy remains resilient and that resources are available to meet such security challenges. A bloated debt could lead to climbing interest rates or force painful increases in taxes. The United States must make all future programs fiscally sustainable to avoid a rapidly rising debt in the next decade and restore flexibility to the federal budget. Our national security, and the
health of domestic programs, depend on it.


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ECONOMIC DOWNTURN WILL CONTINUE Spengler, 2k8 [“How to stop the Great Crash of '08” Asia times, July 1, http://www.atimes.com/atimes/Global_Economy/JG01Dj07.html]

The oil price has doubled in the past year because the US Federal Reserve panicked over risks to the over-leveraged financial system and flooded markets with excess liquidity. The world is willing to pay arbitrarily high prices to hedge against inflation, but the cost of inflation hedges drags down the world economy. Last week's spike in commodity prices and swoon in global stock markets points the way to a deep and prolonged fall in economic activity.

ECONOMY LOW- MULITPLE REASONS AFP, 2k8 [“Paulson says US economy enduring 'rough period'” July 2, http://afp.google.com/article/ALeqM5jULwR5qGGziJG3pD5O_WrnIAX5lQ]

the US economy was enduring "a rough period" and warned that home foreclosures would likely remain high in the near future. The US Treasury chief said soaring crude oil prices, a widespread credit crunch and a two-year long housing market slump had taken some of the wind out of the sails of the US economy. "The US economy is going through a rough period. US foreclosures will remain elevated and we should not be surprised at continued reports of falling home prices," Paulson warned during a speech in London.
US Treasury Secretary Henry Paulson said Wednesday that

Paulson's remarks were also released by the Treasury in Washington. The Treasury chief and former banker stopped off in London Wednesday amid a whistle-stop tour of European capitals. He said the giant economic stimulus -- stuffed with tax rebates and backed by the administration of President George W. Bush -- had helped shore up US growth, but that the

housing downturn poses a "significant" downside risk to economic



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FISCAL DISCIPLINE = NON-UNIQUE—MULTIPLE PIECES OF LEGISLATION Foster, Ph.D., 2k8 [J.D. “War Funding Bill: PAYGO Awry, Surtaxing Toward GI Benefits” June 5, ] Another priority in budgeting is maintaining firm fiscal discipline. Fiscal discipline should mean maintaining a tight rein on spending so that any budget deficit remaining is manageable and sustainable. A tight rein on spending also means that tax burdens need not increase further, which would work to weaken the U.S. economy. This Congress came into office claiming the mantle of fiscal responsibility. Yet time and again it has tried to boost spending beyond the monumental $2.8 trillion on track for 2008. So far in 2008 the Congress has already cobbled together a bloated, nearly $300 billion farm bill, even though farm income is at an all-time high and looks to rise significantly from here. It is also working on an illadvised bailout for the housing sector. The budget resolutions passed by the House and Senate call for significant increases in regular spending. And now Congress wants to hike spending further on domestic programs via the war funding bill, including this expansion of education benefits for veterans. Steadily expanding federal spending does not demonstrate fiscal discipline. AFF- N/U- NO FISCAL DISCIPLINE NOW Russell, 2k8 [Gail, Chaddock Staff writer of The Christian Science Monitor, June 30, 2008, Pg. 25, Congress's spending goes unchecked, with more likely, Christian Science Monitor] Before leaving town last week, Congress wrapped up a $162 billion war-funding bill and expanded America's entitlement system by giving veterans the biggest boost in college benefits since the World War II GI bill. Lawmakers also added a 13-week extension to unemployment benefits and approved $2.7 billion in emergency relief for the storm-lashed Midwest. Despite commitments to fiscal discipline on both sides of the aisle, none of it is paid for - at least not by today's taxpayers.
"There is absolutely no appetite to make hard choices," says Robert Bixby, executive director of the Concord Coalition, citing the war-funding bill. "There's

never been any attempt to pay for the war, and now that's being used to expand a major entitlement program for veterans, which might be a good idea, but we ought to pay for it." Since the 9/11 terrorist attacks, Congress has voted some $857 billion in war funding, according to the Congressional Research Service. That includes $656 billion for Iraq, $173 billion for Afghanistan, and $29 billion for enhanced security - all of it so-called emergency spending paid for with borrowed money. The new GI Bill of Rights, estimated to cost $62 billion over 10 years, is a permanent entitlement that pays four years of college tuition for veterans who have served since the 9/11 attacks. At the urging of President Bush, this new benefit will also be transferable to spouses or children to help prevent a mass exodus from the military after the new benefit comes on line. In the House, conservative Democrats won support for offsets for the new entitlement with a new tax on Americans making more than $500,000 a year, but that provision fell out of the final version of the bill after GOP protests in the Senate.

"We were very glad that the House passed a bill that did pay for it and were disappointed that the final bill did not. But in the scheme of things, we're talking about something that costs $0.6 billion a year against a war that's costing $150 billion to $170 billion a year - and we're not paying for that," says Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities in Washington.

The remaining weeks of the 110th Congress hold more budget-busting prospects, including a second emergency-spending bill for domestic priorities. "I have consulted with the leadership, and next month the committee will consider a second supplemental to deal with the Midwest floods, hurricane Katrina, and to make critical investments in America," said Sen. Robert Byrd (D) of West Virginia, who chairs the Senate Appropriations Committee, in a floor speech Thursday.


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AFF TURN—BUBBLE KEY TO SHORT TERM ECONOMIC GROWTH Janszen, the founder and president of iTulip, Inc. He formerly served as managing director of the venture firm Osborn Capital, CEO of AutoCell, Inc. and Bluesocket, Inc., and entrepreneur-in-residence for Trident Capital, 2k8 [Eric. “The Next Bubble” February 2008, http://harpers.org/archive/2008/02/0081908] Our economy is in serious trouble. Both the production-consumption sector and the FIRE sector know that a debt-deflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression.
We have learned that the industry in any given bubble must support hundreds or thousands of separate firms financed by not billions but trillions of dollars in new securities that Wall Street will create and sell. Like housing in the late 1990s, this sector of the economy must already be formed and growing even as the previous bubble deflates. For those investing in that sector, legislation guaranteeing favorable tax treatment, along with other protections and advantages for investors, should already be in place or under review. Finally, the industry must be popular, its name on the lips of government policymakers and journalists. It should be familiar to those who watch television news or read newspapers. There are a number of plausible candidates for the next bubble, but only a few meet all the criteria. Health care must expand to meet the needs of the aging baby boomers, but there is as yet no enabling government legislation to make way for a health-care bubble; the same holds true of the pharmaceutical industry, which could hyperinflate only if the Food and Drug Administration was gutted of its power. A second technology boom—under the rubric “Web 2.0”—is based on improvements to existing technology rather than any new discovery. The capital-intensive biotechnology industry will not inflate, as it requires too much specialized intelligence.

There is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water. Indeed, the next bubble is already being branded. Wired magazine, returning to its roots in boosterism, put ethanol on the cover of its October 2007 issue, advising its readers
to forget oil; NBC had a “Green Week” in November 2007, with themed shows beating away at an ecological message and Al Gore making a guest appearance on the sitcom 30 Rock. Improbably,

Gore threatens to become the poster boy for the new new new economy: he has joined the legendary venture-capital firm Kleiner Perkins Caufield & Byers, which assisted at the births of Amazon.com and Google, to oversee the “climate change solutions group,” thus providing a massive dose of Nobel Prize–winning credibility that will be most useful when its first alternative-energy investments are taken public before a credulous mob. Other ventures—Lazard Capital Markets,
Generation Investment Management, Nth Power, EnerTech Capital, and Battery Ventures—are funding an array of startups working on improvements to solar cells, to biofuels production, to batteries, to “energy management” software, and so on. The candidates for the 2008 presidential election, notably Obama, Clinton, Romney, and McCain, now invoke “energy security” in their stump speeches and on their websites. Previously, “energy independence” was more common, and perhaps this change in terminology is a hint that a portion of the Homeland Security budget will be allocated for alternative energy, a potential boon for startups and for FIRE.

More valuable than campaign rhetoric,

is legislation. The Energy Policy Act of 2005, a massive bill contained provisions guaranteeing loans for alternative-energy businesses, including nuclear-power technology. The bill authorizes $200 million annually for
however, known to morning commuters for extending daylight savings time, clean-coal initiatives, repeals the current 160-acre cap on coal leases, offers subsidies for wind energy and other alternative-energy producers, and promises $50 million annually, over the life of the bill, for a biomass grant program.

Loan guarantees for “innovative technologies” such as advanced nuclear-reactor designs are also at hand; a kindler, gentler nuclear industry appears to be imminent. The Price-Anderson Nuclear Industries

Indemnity Act has been extended through 2025; the secretary of energy was ordered to implement the 2001 nuclear power “roadmap,” and $1.25 billion was set aside by the Department of Energy to develop a nuclear reactor that will generate both electricity and hydrogen. The future of transportation may be neither solar- nor ethanol-powered but instead rely on numerous small nuclear power plants generating electricity and, for local transportation, hydrogen. At the state and local levels, related bills have been passed or are under consideration.

Supporting this alternative-energy bubble will be a boom in infrastructure—transportation and communications systems, water, and power. In its 2005 report card, the American Society of Civil Engineers called for $1.6 trillion
to be spent over five years to bring the United States back up to code, giving America a grade of “D.” Decades of neglect have put us trillions of dollars away from an “A.” After last August’s bridge collapse in Minnesota, it took only a week for libertarian Robert Poole, director of transportation studies for the Reason Foundation, to renew the call for “highway public-private partnerships funded by tolls,” and for Hillary Clinton to put forth a multibilliondollar “Rebuild America” plan. Of course, alternative energy and the improvement of our infrastructure are both necessary for our national well-being; and therein lies the danger: hyperinflations, in the long run, are always destructive. Since the 1970s, U.S. dependence on foreign energy supplies has become a major economic and security liability, and our superannuated roadways are the nation’s circulatory system. Without the efficient transit of gasoline-powered trucks laden with goods across our highways there would be no Wal-Mart, no other big-box stores, no morning FedEx deliveries. Without “energy security” and repairs to our “crumbling infrastructure,” our very competitiveness is at stake. Luckily, Al Gore will be making principled venture capital investments on our behalf. The next bubble must be large enough to recover the losses from the housing bubble collapse. How bad will it be? Some rough calculations77. To create these valuations, I first examined the necessary market capitalization of existing companies; then, using the technology and housing bubbles as precedents, I estimated the number of companies needed to support the bubble. The model assumes the existence of nascent credit products that will eventually be deployed to fund the hyperinflation. While the range of error in this prediction is obviously huge, the antecedents—and more important, the necessity—for the bubble remain.: the gross market value of all enterprises needed to develop hydroelectric power, geothermal energy, nuclear


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energy, wind farms, solar power, and hydrogen-powered fuel-cell technology—and the infrastructure to support it—is somewhere between $2 trillion and $4 trillion; assuming the bubble can get started, the hyperinflated fictitious value could add another $12 trillion. In a hyperinflation, infrastructure upgrades will accelerate, with plenty of opportunity for big government contractors fleeing the declining market in Iraq. Thus, we can expect to see the creation of another $8 trillion in fictitious value, which gives us an estimate of $20 trillion in speculative wealth, money that inevitably will be employed to increase share prices rather than to deliver “energy security.” When the bubble finally bursts, we will be left to mop up after yet another devastated

Given the current state of our economy, the only thing worse than a new bubble would be its absence.
industry. FIRE, meanwhile, will already be engineering its next opportunity.


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economist at JP Morgan in New York, stressed the limited economic toll of 9-11 and said the world economy was then much weaker than it is now. "After 9-11, the anecdotal surveys of consumer and business sentiment were hit pretty hard. But the damage was pretty fleeting and most of these reversed within a month or two," he said. "The heartening lesson to learn from these tragedies is that people are resilient, economies are resilient and tend to bounce back – as painful and sad as it
David Hensley, is." Economists at Goldman Sachs said in a note to clients that it was hard to draw conclusions in the middle of such tragic events but said more factors would have to come into play for there to be a lasting economic impact.


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