Bloomberg News

U.S. Needs Austerity to Reset Economy, Pimco Says: Tom Keene

June 08, 2011

June 8 (Bloomberg) -- The U.S. should stop kicking “the can down the road” and implement fiscal austerity measures so the economy can fully recover from the financial crisis, according to Pacific Investment Management Co.’s Neel Kashkari.

The government should abandon stimulative measures and focus on economic adjustments in order to allow for long-term growth, Kashkari, managing director and head of new investment at Newport Beach, California-based Pimco, said in an interview on Bloomberg Television’s “Midday Surveillance” with Tom Keene.

“There’s no question that austerity has short-term consequences, but we can’t just continue to kick the can down the road here,” he said. “We can’t continue to try to use short-term stimulus measures to delay the necessary economic adjustment. At the end of the day, our economy needs to adjust. We need to get our fiscal house in order and it’s not pain- free.”

Kashkari said that tax policy should be changed to encourage savings and investment after the widespread accumulation of debt during the past 30 years.

White House officials are working with Republicans in the U.S. House of Representatives to secure a deficit-reduction plan and an increase to the $14.3 trillion federal debt limit. The Treasury Department reiterated last week that U.S. authority to borrow under the debt limit will expire on Aug. 2.

The government’s $787 billion American Recovery and Reinvestment Act of 2009 funded federal programs and provided aid that was aimed at boosting the ailing economy.

The Labor Department reported last week that the unemployment rate rose to 9.1 percent in May, the highest since last year. The U.S. economy grew at a 1.8 percent annual rate in the first quarter, down from a 3.1 percent pace in the fourth quarter.

--Editors: Paul Cox, Dennis Fitzgerald

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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