US Credit will restored in time
July 27, 2011
Let's recognise some good from the debt ceiling ISSUE
The discussion going on now in the USA is the same discussions that Greece and Italy have been having - the only difference is that Greece and Italy have no option but to cut deficits they really are broke!
We in the US, on the other hand, have created our own deadline by using the Debt Limit Increase vote, something that would normally have been a formality. Sure, it would have been better to have agreed to a plan to reduce the deficit without having to take the USA's fiscal credibility down this precarious path, but given record spending, a lack of leadership from the White House, and a refusal to accept the hard economic facts by the leadership (a deficit of around $1,5 Trillion - in just this year!), any voluntary solution to the problem was probably not on the cards.
I find it hard to believe that the credit rating agencies are not taking into account the beneficial aspects of the US successfully reducing spending and deficits ("austerity measures" as they call them in Europe) as a result of this crisis. They know, as we do, that the US will not "default" because it is not worthy of the credit to pay its debts; it will default because of a technical "brake" put in place for good reason. The US has national debt at approximately 70% of GDP, not bad by European standards. Is this not much the same as having not having a budget approved - what happened under President Clinton when there was government shut down? That's not called a :default", but in the same way as is predicted now, bills don't get paid until a budget is approved. Minnesota has just gone through this.
Cutting spending is not fun, but cutting expenses never is. Most of commercial America had to do this two years ago when the economy crashed, so why should government do it also? The lesson is, like taking off a Band Aid, rip it off quickly and you'll feel better sooner.
In time we'll look back at this time, if the deficit really is reduced, and credit will be given to the US for taking pro-active steps to avoid real default like what is happening in Europe now.
