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And Policymakers Are Proposing to Withdraw Stimulus?

Menzie Chinn:

Econbrowser: And Policymakers Are Proposing to Withdraw Stimulus?: The output gap remains large, and will still be -3.6% in 2012Q4, according to the mean WSJ June survey.... So, I think I understand where PIMCO’s Bill Gross is coming from (The Hill):

Bill Gross, the head of PIMCO, the world’s largest bond investor, on Tuesday lambasted politicians who claim deficit reduction will lead to job growth and called for new stimulus spending. Gross is often cited by House Budget Committee Chairman Paul Ryan (R-Wis.) as having said the U.S. had only a few years to rein in the deficit to avoid a debt crisis. Gross sparked a lot of attention by dumping his holdings of U.S. Treasuries this spring. “Deficits are important, but their immediate reduction can wait for a stronger economy and lower unemployment. Jobs are today’s and tomorrow’s immediate problem,” Gross wrote in PIMCO’s July Investment Outlook....

And from Fed Chair Ben Bernanke’s press conference yesterday (h/t Ezra Klein):

I have advocated that the negotiations about the budget focus on the longer term, say 10 years, which is the budget window, or even longer if you're taking into blth entitlement reform, for example. By taking a long run aspect we can help the economy by reducing interest rates that may rise suddenly, we may help increase confidence in the households and businesses so ink it's desirable that we take strong action to lower our budget deficits over the longer term. In doing that I think it would be best not to, in light of the weakness of the recovery, it would be best not to have sudden and sharp fiscal consolidation in the near term. That doesn't do so much for the long-run budget situation, it's a negative for growth.... I hope that the congressional negotiators will take a longer-term view....

The United States faces a serious long-term deficit problem and an immediate short-term problem of slow growth and high unemployment. Current economic and budget conditions in the United States do not look at all like the conditions in countries that have experienced successful deficit reduction through short, sharp fiscal contractions. Non-partisan experts like Fed Chairman Bernanke and the Congressional Budget Office warn against cutting deficits too fast. And as the non-partisan Congressional Research Service concludes from its analysis of the international evidence, cutting budget deficits too rapidly under current U.S. economic conditions is most likely to hurt the economy and ultimately be unsuccessful. If we go down this path, I’m afraid the lesson will be “Spend Less, Grow Less, Slow the Economy.”

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