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Former Federal Reserve Vice Chairman Alan Blinder on the debt ceiling’s potential impact on the economy.
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In the first month of the year joining -- now with his take on the Obama economy former Federal Reserve vice chairman and member of the president's.
President Clinton to be exact his council of economic advisors doctor Alan Blinder.
He is also author of the brand new book called after the music stopped.
The financial crisis the response and the work ahead -- it's wonderful to have this opportunity to meet you have this conversation if you face to face.
Thank you.
-- thoughts on the president shattering the -- council.
Well.
It's an -- I think there was never gonna be a good time to do this these things -- mostly symbolic the symbolism was very important when he first came into office.
Admits the crisis -- the worst crisis that we had since 1930s the importance of the symbolism has been falling.
Through time but there has never going to be.
I can imagine those that may be a good time for him to say you know we don't need to anymore -- -- -- some time.
What are your thoughts on the president's future strategy dealing with the jobs crisis were going to have the big jobs report for the month of January.
Tomorrow the initial jobless claims surprisingly worse than expected today yesterday's GDP re showing small contraction.
It's not shaping up to be all that -- of a picture at least when you look at the data points.
It is not grade.
The both tiny negative number we -- for GDP in the last quarter was an aberration related to the aberration in the other direction on the third quarter.
You -- sort of average -- cross them.
I you know I'm tend to say this was the best zero I've ever seen on GDP growth -- -- a look at the consumer was doing pretty nicely spending.
Our market on the -- we just reported -- I think they saw through it -- said business investment very good in that.
Report you have government spending pulling it down and yet inventories so you're not concerned were heading into recessionary territory no not at all but I am concerned that we're kind of stock in a 2% dish.
-- lately a little below 2% before that was a little above 2%.
But in any case something like that and that's just not good enough when you got seven point 8% -- And it's -- like that we've had this sluggish growth for some time now.
We've had this extraordinary government spending since if you look at it since the last quarter of negative growth almost.
Was it three point six trillion dollars in government spending so really makes you question.
This administration's economic policy I mean where is -- getting -- -- -- A lot of people of question it but the truth is that since the stimulus the stimulus caused the big burst the government spending as you'd expect that's -- be stimulus that -- boast stimulate the economy.
Then it starts falling.
And in fact government spending an almost every quarter since has been dropping dropping dropping this this kind of -- that was spending more and more and more.
We're not actually we're spending less than last we still do have these big deficits.
The decrease in government spending can you equate it to the government downsizing as many Republicans are looking for spangled -- Yeah a little bit it's not dramatic I mean I don't exactly it is not like the size of government has fallen off a cliff.
But it is dribbling down not dribbling out the senate approved the house plan to suspended debt ceiling until May nineteenth and hold off on congressional pay if they don't get a budget deal for the next ten is that telling you say this is more -- a risk perhaps an even the fiscal cliff what.
So we the debt ceiling is a potentially large fiscal contraction like the fiscal cliff was.
In that kind even bigger actually if you do the math and debt ceiling means you can't borrow -- -- tip the balance the budget tomorrow.
In addition to that there was the kind of not very veiled threat that we might default on the national debt or postpone payments.
So you playing with a combination of the big fiscal contraction and the possibility of tripping off a financial crisis.
Also interesting I want to ask you about your book before we let you go -- after the music stopped.
This is a book about the financial crisis 20072008.
Looking back -- that -- -- -- -- but what were the best actions taken by the federal government what was the worst.
I think there -- three that would affect kind of do a tie for first of Natalie asked if that if one was not TV -- -- what -- no one -- the TARP.
Very unpopular but very effective and turned a profit.
Four of the taxpayer second was the stimulus that we were just.
Talking about could have been better wasn't a perfect stimulus bill.
But pretty good given the political.
Constraints third what almost no one ever talks about the bank stress tests.
To me the bank stress tests in the spring of 2009.
Where the equivalent of FDR's bank holiday.
In 1933.
Interesting ones who was over people felt the banking system is safe again.
Without those mechanisms do you believe the US economy would -- fallen off a steep cliff into a true depression.
Yeah I mean depression depends on language but.
I estimate it would Mark Zandi several years ago we might have hit an unemployment rate of 1617%.
That's pretty horrible I look forward to reading your book and -- I'm not just the quick skim I did before interview Allan thank you -- -- coming on tonight tonight.
So let's get Alan -- is book is called after the music stopped and you can find it online and at bookstores right now.
