Do Americans really understand this two-pronged economic problem?

[Mister Chartreuse]

America is in the process of recovery from one of the worst recessions in its history. At the same time, the national debt has bloated to gargantuan size.

If the budget it "balanced" and spending is cut to the point where debt can begin to get paid off, America will plummet into another recession (since government expenditure is, at this time, an extremely significant portion of the country's GDP). While, theoretically, monetary policy and the private sector could eventually close this resultant recessionary output gap, there is really no telling how long it would take and what the full extent of the social consequences would be.

If the budget remains unbalanced and the debt continues to increase, America's credit rating is sure to continue to be downgraded by S&P, severely hurting foreign investment and decelerating long-term economic growth.

If you had to choose between these two, which would you pick. Is there a happy medium? If so, describe it in detail.
@T. Pain
Not really. Revenue might increase (arguable), but this would constitute a negative aggregate demand shock - decreasing the GDP; although, I will acknowledge that these individuals in these higher tax brackets likely save a larger portion of there money, so the economic consequences would be lesser than those of a general tax increase.

Still, it certainly won't solve the problem.
@The 1%
Cutting government spending does not necessarily create a "depression"; depending on the shape of the economy, government spending actually should be cut for economic benefit. However, in this shaky recovery situation, cutting government spending would have short term consequences (this is theoretically inarguable).

Personally, I am leaning more to the "bite the bullet" budget balance plan, letting the economy crash and employing monetary policy to fix the situation like you suggested.

[T. Paine]

The problems could be fixed by increasing taxes on the rich and lowering them for the poor and middle class.

[Elmer]

False dichotomy

FAIL

[The 1%]

If cutting government spending creates a depression then by that logic 1946 should have been a horrible year for the American economy. We need to bite the bullet, raise interest rates before the Chinese dump our treasuries and make them go up, cut huge amounts of government spending on all levels, let too big to fail companies and banks fail, and let all prices fall so Americans can afford to live comfortably again.

It's going to suck for a couple of years, but it is better than going the way of Zimbabwe, Argentina, Mexico, and many other societies throughout the world and human history.

[libertarian]

I say it is better to take our medicine now even though it stinks instead of having our cost to service the debt become so great that no amount of medicine can cure us.

[ideogenetic]

Reverse the Bush tax cuts on the wealthy, in fact, increase the marginal rate to 90% like in the 1950's and redistribute the wealth. The budget is more balanced, the economy grows, U.S. credit rating saved.

Monetary policy can't fix it. We're in a liquidity trap unless you redistribute wealth. There is no reason for the smart money to invest in anything when the consumer (the 99%) have been destroyed by bad Republican economic policy.

[irongrama]

In 1934/1935 we were starting to pull out of the Great Depression. Then everyone got panicky about the deficit and debt and cut spending. This threw us into a downward spiral from which we did not recover until WWII. Without the war who knows how bad it might have gotten and how long it would have taken to recover. There are many other instances of this in our history. Currently the people are not spending because they are either unemployed, underemployed or afraid of being unemployed. Business don't spend because there is not enough demand for their products. The only segment of society that can spend is the govt. and that is the only way out of this. When the economy is running high they can then take care of the debt.

[Master Of Twilight]

As an American, I really don't think anything can be done with our situation. Our past Presidents have only made our debt worse and done little to address the problem. Our economic predicament is not one that will be solved easily and even if a dramatic change were to take place right now, it would still take years to pay off, my own Great-grandchildren will likely still be paying for it.

Our main problems are the tax cut on the wealthy (fail) and the major disproportion of wealth.
Your typical American government is basically ruled by social class, religion, and whatever the taboo hot topic of the year is, gay marriage, abortions, racism, foreign affairs, ect..which are the main reasons for our major economic issues to nvr be addressed. (That and the fact that whatever social class feels that they on are the ones losing in the proposed plan refuses and lashes back. I.e. republicans with threats to use their wealth to sabotage the plan and the proposers and approvers career. Democrats, by protesting the lower classes suffering and the affects that this could cause for the future.) Personally, I feel that they both seem to derail the whole system in there own way.

This being said, unless people learn to think logically and not with social or religious values in mind, then we may never recover in the long run even if a temporary solution is reached.


Anyways, I apologize if I failed to answer your question.