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Taking Action on Spending

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    Stanford Economics Professor John Taylor argues we need a link between the debt ceiling and spending cuts.

  • Duration 3:50
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Well JPMorgan.

Chase CEO Jamie Dimon says default would be a moral disaster he was answering a question for Bank of America vice chairman Tom -- is gonna.

Good friend of our show the -- at a conference in Denver where Jamie Dimon said the US is the financial linchpin of the world and its default would be potentially catastrophic.

So is using the debt ceiling to reduce spending really smart play by Republicans John Taylor.

-- -- professor of economics at Stanford University behind that the famous Taylor rule monetary policy.

Professor Taylor thank you very much for coming on you would like to see a trade -- -- link between a spending cut and raising the debt ceiling tell us what.

Oh absolutely because if -- just raised the debt limit without taking any action on spending which is really the problem here you just.

Picking the problem down the road so I think it's essential for credibility.

To reduce the chances of the -- Down the road to reduce spending.

As the debt limit is increased otherwise his little credibility so I think those who argue about.

We should prevent a deep fault they're right we shouldn't default because I think the chances of default in the future or larger if you just raised its debt limit without -- and he's been -- action.

OK so it -- in other words long term consequences that would be potentially.

Worse we still a lot of interviews on this topic over the last few weeks few months.

And here's the one thing that I still can't understand the negotiating process without taking a position on whether either side is right.

If most people agree whether it's -- speaker of the house John Boehner -- somebody on the democratic side that eventually we're going to have to raise the debt ceiling.

How do you establish any kind of a link if you're negotiating position is at the end of the day no matter what we're still gonna give in how is that a negotiating position to know domestic.

Of course I think the best way to think about it is put the negotiating positions side put but the notion that aside that is a threat -- or.

Or a game of chicken and recognize that it is really important to do both it's very important to raise the debt limit because that has to do with.

The deficit this there now but it's very important to simultaneously as part of the same thing.

Is to reduce the spending growth so people who advocate good fiscal policy.

Should be saying let's try to get this done with both.

The increase in the debt and cutting this -- so I think that's the -- you don't want to think about all the years of negotiation.

But at the end of the day it -- at least politically will be that so would you agree that the spending cuts that we get.

Might be smaller and then you know Republicans are people on your side.

Would support just because of the fact that again we're going to agree to raise this debt ceiling -- that is not part of what's being up for negotiation.

Again I'm trying to do is to show people why we should do both it's in the interest -- the Democrats it's in -- Republicans.

And by the way there's there's -- spending cuts already.

On the table with.

Budget that the president put forward.

After his first budget yes -- the budget in and then there's they're spending cuts and there's -- get started with those I think there's plenty of room here.

To put together a package which is quite a -- The final thing professor judge you look at the markets as we do every day and look it's a ten year notes and how low the -- -- -- and haven't really moved on the worry.

Of this not happening would you agree that everybody is assuming and I guess hopefully they're right that that -- something will get done on and on both sides spending we'll get cut in the ceiling would get raised.

I hope so I think there's still -- little risk people have in mind whether this will go down to the wire and maybe this should be some problem as you get close to the wire but I think.

I think that's right people recognize that this is this is gonna get solved I think.

Paulson possibly because the Republicans and and Boehner confronted this notion that we just should raise the debt limit a clean bill I think that's beneficial people recognize is going to be something substantial done here we will get a trade off a little bit -- both professor John Taylor it's always great to talk to thank you very much for coming out.

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