Federal budgeting is nutty because the federal budget assumes every item in the budget automatically rises annually regardless of economic conditions by somewhere between 3% and 10%. Based on this insanity if we simply freeze spending at the current level and do it for a decade, the Congressional Budget Office would consider that a $9.5 trillion CUT! At 2% growth the CBO would score a $4 trillion cut.
We know the Bernanke lead Fed is willing to be extremely aggressive. But as we saw in 2010 the hurdle is high for more Quantitative Easing. We need evidence of A) a double-dip B) a stock market correction of at least 15 or 20% and C) the real prospect of deflation. But if headline inflation is running at 4% and other central banks are tightening QE3 will be a very tough sell.
70 Words on the Economy. Daily.