10.01.11

The question that needs to be asked at the next GOP debate

Posted in General Musings, Politics and Policy at 4:26 pm

“If you were president, and you received a call at 2AM stating that Greece has defaulted, the contagion has already begun to spread to several other European countries, and a number of large European banks are hours away from bankruptcy and about to trigger a repeat of the 2007-2009 financial crisis, what would you do?

“Before you answer, Mr. Candidate, understand the following.  In 2008, the US exported $325 billion in goods and services to Europe; in 2009, that figure dropped to $258 billion due largely to the financial crisis and recession.  That effect alone was enough to trim over a half a percentage point off of GDP growth, and Europe was not the center of that crisis.  In this case, we could likely expect the impact on US GDP to be an immediate multiple of that.  However, that’s not the biggest problem.  The biggest problem is that US Money Market funds have nearly $1 trillion in exposure to European banks.  Once again, the entire US financial system, and much of the world financial system, are roughly 24 hours away from complete collapse.”

“The Chairman of the Federal Reserve and the Secretary of the Treasury have been meeting all night and are prepared to brief you on the situation as well as lay out their plan for avoiding catastrophe.  It involves extending unlimited liquidity lines to the ECB and other central banks as well as massive capital injections into the largest domestic banks.  We have the chairmen of the SEC and CFTC along with the president of the NYSE on standby to dial in.”

The answers to this question should be quite illuminating for a number of different reasons.  They will immediately demonstrate which candidates have a grasp of economic policy issues and which do not.  This represents a crisis situation that demands a solution, and will demonstrate candidates’ capability to respond to an emergency.  It is a specific question that demands specific answers, rather than ideology, handwaving, and spinning of past accomplishments.

1 Comment »

  1. liberal said,

    10.16.11 at 8:45 pm

    But you know what their answer is already, don’t you? Cut taxes on the rich.

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