BUSINESS
07/08/2011 02:14 pm ET | Updated Sep 07, 2011

Morgan Stanley Executive: Debt Deal Could Be 'Exactly' What Economy Needs

On the news that President Obama and Congressional Republican leaders may have laid the groundwork for a debt-ceiling agreement, Morgan Stanley economist David Greenlaw praised the alleged elements of the deal, saying they made up "exactly the type of program that is needed from a macroeconomic perspective," according to Business Insider.

Greenlaw, a managing director and chief U.S. fixed income economist at Morgan Stanley, was responding to reports that Obama and House Speaker John Boehner "have an agreement in principle on the framework" of a deal.

Greenlaw writes:

Apparently, President Obama and House Speaker Boehner have an agreement in principle on the framework of a package that would include significant entitlement reform, major tax increases starting in 2013 and an extension (and possible expansion) of current tax breaks into 2012. This is exactly the type of program that is needed from a macroeconomic perspective -- long-term deficit reduction combined with a continuation of near-term fiscal stimulus.

Greenlaw adds that "the likely market reaction to such a deal is unclear."

On Friday, The Wall Street Journal reported that President Obama and Congressional leaders have their sights set on a $4 trillion deficit-reduction plan, one that would entail higher tax revenues and spending cuts for defense and entitlement programs.

An Associated Press report said the idea was "well received" by all sides, though the president told reporters that Democrats and Republicans "are still far apart on a wide range of issues."

While Greenlaw seems sanguine about the proposal and its effect on the economy, many commentators seem skeptical that the deal will even come to pass.

"Given the scope of the work, and the skepticism from leading Republicans," wrote The Washington Monthly's Steve Benen on Friday, "how anyone expects this to come together in the next few days is a mystery."

"I'm just not seeing it," agreed The Washington Post's Ezra Klein. "The groundwork isn't there for a $4 trillion deal to be struck and approved in the next week or so, or even the next few weeks."

And New York Times columnist Paul Krugman writes that all this "might just be theater" -- that Obama is offering a deal he knows Republicans will find unpalatable, so as to make them look unwilling to compromise.

However, Krugman adds, if spending cuts really are on the table, he suspects they'll only slow growth and contribute to unemployment -- a prospect that seems particularly dire in light of Friday's gloomy jobs report.