Good news from the debt ceiling deal is hard to find but Macroeconomic Advisers is suggesting the impact to be only a reduction of 0.1 percent of GDP growth on average per year. That is encouraging, if accurate.

What Macroadvisors is saying is that the deal itself shouldn’t supply that much drag to the economy. The decline probably won’t be enough to cause the economy to grind to a halt if it isn’t already doing that on it’s own. It’s madness that we’re even cutting spending with the recovery on such unstable ground but elections have consequences.

Right now there are still as many reasons to believe the second half of 2011 will be stronger than the first as there are reasons to believe it will get worse. Most of the blame for the stall has been factors outside the control of the United States such as Japan and Europe. If we can make it over the hump then we should be able to continue our recovery and avoid a second recession.

The markets aren’t liking the debt deal as much as some wanted them to. The media predicted a rally on the deal but so far the response has been ho-hum. Consumer spending being down in June has been a bigger worry this week. Perhaps once the deal is final we’ll see a bit of a rally. I’m not surprised the markets are scared that this deal might all fall apart given the extreme lack of faith in our Congress these days.

The bad news from Macroadvisers is that if a deal isn’t reached later this year then the automatic cuts will tank us 0.7% more. Still, we have no reason to assume that will happen yet. We know if worst comes to worst the Democrats will simply cave in and give the GOP what they want. Let’s just hope the GOP doesn’t think the automatic cuts will be a good idea.

I’ve heard some conservatives complaining that the cuts take place over a decade. Does anyone actually believe we can cut out a trillion in spending virtually over night and not destroy our fragile economy? I guess that’s one way to prove we’re headed into a second recession. The GOP can just cause it themselves and remove all doubt.


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