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Rx for a double-dip recession: Cut government spending by 15 percent

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Charles Dharapak / AP

(Read caption) House Republicans leave the White House in Washington, Wednesday, June 1, 2011, after their meeting with President Barack Obama regarding the debt ceiling. More than 100 House Republicans signed a proposal to reduce the federal budget by 15 percent in 2012.

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Apparently nostalgic for recession, more than 100 House Republicans have proposed to cut federal spending by $550 billion in 2012. The Republican Study Committee (RSC) doesn’t ever quite say this is their plan, but it is. One hardly knows where to begin.

This is an amazing number. It implies a 15 percent reduction in government spending in a single year—in the midst of a weak economy with unemployment that exceeds 9 percent. It is an austerity budget of historic proportions. Just to compare, the United Kingdom is moving to cut spending by 20 percent over four years. The House Republican budget devised by Budget Committee Chair Paul Ryan (R-WI) would cut 2012 spending by about 3 percent or $110 billion. The RSC would make Ryan look like a crazed liberal. Of course, that may be the idea.

Not only do these lawmakers appear oblivious to the real economy, they may also be fundamentally misreading the markets. I am increasingly hearing from Wall Street that a double-dip recession is a far more immediate worry than the deficit. Of course red ink remains a long-term problem, and Congress must both cut spending and raise taxes to address it. But by slashing spending so deeply and quickly, the RSC would almost surely throw the economy back into recession.

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