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Dancing on Pins

Searching for a delicate balance.

12:00 AM, Jun 12, 2010 • By IRWIN M. STELZER
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There is talk in Washington that soon after the November congressional elections the president’s commission to reduce the deficit will come up with a combination of cuts in entitlement spending and increases in taxes, including some form of VAT. That will give Obama the occasion he needs to “pivot." If, as we now expect, the Democrats sustain heavy losses in the congressional race, the president will indeed pivot, and jettison profligacy for prudence, presenting himself to the electorate in 2012 as a born-again fiscal conservative. Ideology will not stand in the way of political survival. As Groucho Marx is reported to have said, “Those are my principles, and if you don’t like them … well, I have others.” Truly presidential.

Meanwhile, Bernanke, who says a double-dip recession “can’t be entirely ruled out,” will keep interest rates low. He wants to offset any budget tightening the president might be able to push through a Congress in which fiscally conservative Republicans have increased their presence, help the lagging jobs market to recover,  give the economy a bit of boost should the sinking euro cut into U.S. exports, and buy some insurance against a major contagion rolling across the Atlantic. That might, just might, make his forecast that the U.S. will grow at an annual rate of 3.5 percent stand up to some of the harsher realities that have not yet been faced as the world economy pays the bills it ran up in the boom years.

In short, Bernanke knows we are dancing on pins, and wants to have some recourse should we get a bit too heavy-footed and burst a balloon or two. 

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