Goldman Sachs Says GOP Budget Plan Will Hurt Economy

The GOP spending cuts have been criticized again.

A Goldman Sachs economist has warned that the $60 billion package of spending cuts proposed by the Republicans to counter President Obama's proposal could slow economic growth.

And if budget wrangling between the Obama administration and the Republican-dominated House of Representatives led to a shutdown? That, according to Goldman, could cost $8 billion a week, the Financial Times reported.

Goldman's warning follows Treasury secretary Timothy Geithner's recent claims that the Republican plan would cost jobs.

In the confidential report, obtained by ABC News, among other news outlets, Goldman Sachs economic forecaster Alec Phillips said the GOP plan could slow economic growth by up to 2 percent. Even a compromise deal, with $25 billion in cuts could slow growth by 1 percent.

In its latest spending plan, the White House predicted GDP growth of 2.7 percent this year.

Goldman's analysis contradicts the GOP's "cut-and-grow' fantasy," Chuck Schumer, (D-NY) told Reuters. "This nonpartisan study proves that the House Republicans' proposal is a recipe for a double-dip recession," Schumer added.

The Republican spending measures were proposed in opposition to White House budget plans released earlier this month, spurring fears that there would be no compromise before temporary measures funding the government run out on March 4.

Without a budget solution, the U.S. government could be shut down. Based on similar government closures in 1995 and 1996, Goldman says a shutdown would cost the U.S. economy $8 billion in reduced spending.

Earlier this month, the White House presented a budget focused on reducing the deficit and spurring growth. President Obama's plan included funding cuts for a variety of programs that assist the working poor, and help the needy heat their homes.

The aggregate of the cuts, the Goldman report said, according to ABC News, could briefly slow growth:

"Federal spending cuts deserve the most attention... discretionary spending cuts of $25bn and $50bn below the CBO baseline for FY2011 and FY2012 respectively--would shave nearly one percentage point off of the annualized rate of real GDP growth in Q2, but would fade quickly with a negligible effect on growth by year-end."

In response, early on Saturday morning following an all-night session, the House of Representatives voted 235-189, to pass legislation that would slash $60 billion in government spending between now and the end of September, setting up a showdown. The President has vowed to veto the plans.

Comments

[builderman55]

12:04 AM on 03/03/2011

We are truly living in a Kafka novel. The GOP, who never met a corporate CEO they didnt love, are now, being told by the Lord of their Fief, that their budget plan will hurt the economy. Ben Bernanke, a lifelong Republican is telling the GOP that their budget cuts are going to cost jobs. The Hope and Change campaigner has turned out to be the ultimate insider, a leader who wants to e loved by everyone. This is all giving me a headache...

[iridium53]

01:19 AM on 02/28/2011

Boehner, where are the jobs?

[mstock57]

12:19 AM on 02/28/2011

How much money did Goldman Sachs give to the GOP? Buyers remorse?

[MauricioC]

04:43 PM on 02/27/2011

When Goldman Sachs say that the GOP budget is bad, it is bad.

[Schmice]

07:44 PM on 02/26/2011

Well, if Goldman Sachs says it will be bad for the econmy, maybe the Republicans will have second thoughts. Then again, maybe not. Their chances in 2012 depend on a bad economy.

[comment from Ron]

03:05 PM on 02/27/2011

You hit the nail on the head. First, if Goldman Sachs says the Republican budget will hurt the economy, then you really have to think how far out Republicans have gone. Yet, as you say, the Republican objective is to raise the deficit, tank the economy, and blame it on Obama. This is how they plan to win elections, and this is how they plan to justify the need to go after the entitlement programs such as Medicare, Veteran's Benefits, etc. The Republicans are smart people who tend to get what they want. Too bad what they want hurts millions of people and is essentially immoral.

[Schmice]

03:40 PM on 02/27/2011

You said it better than me. F+F

[dbw53022]

05:14 PM on 02/26/2011

Goldman Sacks vs GOP? One of the seven signs of the apocalypse.

[builderman55]

01:42 PM on 02/26/2011

The Lords of the GOP have spoken. The corporate masters have issued an edict...

[Schmice]

07:45 PM on 02/26/2011

What a cynical comment....but you are absolutely right.

[mgrant33301]

07:20 AM on 02/26/2011

boehner seems to wing it in everything he does. i seriously doubt he spent more than a real hour contemplating what to do about the budget, and in that hour he probably was distracted with his visions of corporate golf junkets. he's an example that ANYONE can become powerful if you kiss enough ass.

[mstock57]

12:21 AM on 02/28/2011

He contemplated it over his booze.

[Diplomats415]

07:00 AM on 02/26/2011

Left, right, doesn't matter, we're on our way to banana republic status and if we don't stop the ship the next time people will protest it will be with pitch forks, guns, and hunger. For as much as I don't agree with what Goldman has done in the past they are right on this front.

[Klarsonent]

11:47 AM on 02/26/2011

Agreed.

[kamact]

03:03 AM on 02/26/2011

I agree with the GS financial terrorists on the one issue

[George Robertson]

02:27 AM on 02/26/2011

Republicans prescribe making government, wages and benefits all smaller. Democrats back Wall Streeters who prescribe growth, paid for with government borrowing. Wall Street's scheme boils down to a kind of pension, or long term annuity for Wall Streeters protecting them from poverty in their old age. All us low wage, benefitless, pensionless, hopeless and jobless Americans when we have a job, will be paying those bond holder banks interest on 600 Billion in US Bonds pretty much forever. Think that sounds bad? Consider this. Wall Street bought that river of long-term income with 1% loans they got from the Fed. They did not invest their own money. They bought the bonds with money they got the fed to print and hand to them at a price so low, that it guaranteed huge interest rate profits. That produced huge profits for the banks and world record bonuses for the bankers. This new profit windfall happened because, after the economy crashed ,as a result of Wall Streets massively fraudulent mortgage backed securities crash. Bankers convinced us that there is such a thing as "too big to fail" and that therefor, it was our responsibility to give them all our money now, and our property through foreclosure, and nearly all the future money we might ever have, in the form of the interest we will pay them on those US bonds we floated, and loaned them the money to buy, to make sure they earn a big profits. Want relief? Vote Socialist.

[structurequity]

11:14 PM on 02/25/2011

Goldman S.cks says we should not bother them for there is no money to be made in this derivative!

[BMVB]

09:39 PM on 02/25/2011

Have no interest in this story but this guy's face is scary. www.sportbloggers.com

[aynrandfan2012]

07:53 PM on 02/25/2011

Obama got more money from the investment banks than the unions....they are die hard socialists....dont pay down the debt....they need to steal more .....your kids can pay it....LOL

[George Robertson]

02:48 AM on 02/26/2011

Socialists? These bozos are inflating the same Wall Street capitalist growth balloon they just exploded. That makes them Socialist? Excuse me, but Socialists flatten the incomes pyramid. Socialists make policies that help ordinary wage earners get better off as opposed to bankers and Wall Street tycoons. Democrats may be corrupt, which I think you made a pretty good case for in your statement, that makes them exactly like the Republicans in that regard. But don't accuse Democrats of being Socialists. If Democrats were Socialists they would not be doing the kind of dumb retrograde capitalist stuff they are doing, the bankers would not be nearly so fat, and we would be on the road to recovery by employing people in American instead of China. Just like we did in the New Deal.

[baileywick]

07:13 PM on 02/25/2011

Let them join the ranks of the unemployed next election. Here's hoping.