Monday, 1 August 2011
The deal is not perfect according to President Obama. He can say that again. The price of raising the debt ceiling in the US by another $2.4 trillion are to be met by cuts over the next ten years of an equivalent amount.
The world might breathe a sigh of relief that America is not going to create chaos by defaulting on its loans but the relief will be short lived when the implications of the deal are understood and the real cost emerges.
The country’s debt could have been reduced quickly and interest rates lowered if there had been tax increases. But no there ain’t going to be any, the Republicans have stood their ground and the rich will not face any tax hikes.
No tax increase, mean cuts to benefits. It will be that counties poor pensioners that will carry the main burden rather than the well-off. Well, it was always thus as the old song goes “it’s the rich that get the pleasure and the poor that get the blame.
President Obama came into office on a tied of liberalism and his actions in endorsing such a package puts him firmly right of centre. While welcomed by the rich in America, President Oboma will be accused of turning his back on the poor, sick and old.
This deal plays to the Tea Party’s simplistic agenda of cuts and cuts again. Their one ambition is to emasculate the Federal government and by agreeing this deal Obama has given the ambitions a major boost.
Well, that’s a matter for the US many of you will say. It’s up to them how they run their economy.
Well, of course it is. But these cuts when enacted will mean that the US economy is going to flat line for a number of years, ten to be precise. And as the world’s largest economy is not to grow then on the other side of the pond there will be a serious knock on effect.
The UK has seen little growth in its GDP this last year. For things to change for the better our trading partners need to grow their economies. If the world’s most powerful economy is about to give a massive thumbs down to growth, the future looks bleak indeed.
Not for the first time has domestic US politics undermined economic recovery. It happened in the nineteen thirties and it looks set to be repeated in the twenty first century. We’d all better get used to tightening our belts with ten years of austerity in the offering.