International Monetary Fund on Cutting the U.S. Budget Deficit: No Free Lunch

The IMF World Economic Outlook offers a sobering warning to those who want to cut the federal budget right away:

Fiscal contractions, fiscal consolidation, typically reduce growth and raises the unemployment rate in the short term. A one percent of GDP budget deficit cut reduces GDP by half a percent and raises the unemployment rate by a third of a percentage point within two years.

Though the IMF is quick to add that the U.S. will need to confront its budget deficit soon, hopefully before the baby boomers are all retired.

Source: http://www.pbs.org/nbr/blog/2010/10/international_monetary_fund_on.html

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