President Barack Obama and Congressional leaders, Republicans and Democrats, might have struck a last-minute budget deal that will raise the nation's statutorily fixed borrowing limit and thus avert a calamitous default by the federal government. But the bitter political acrimony in the run-up to the agreement, the intense politicisation by far-Right sections of the Republican party of what ought to have been a routine but necessary enhancement of the government's borrowing powers, and the apparent willingness of sections of the political elite to risk the nation's reputation rather than give up on dogmatic, pro-rich positions speak to the crisis at the heart of the U.S. political economy. When the final details of the deal are released, the Obama administration and the Democratic Party would be seen to have compromised heavily on what they had argued were non-negotiable positions. The Republicans had argued for, and finally succeeded in imposing, large spending cuts in the federal budget in return for raising the debt ceiling. On the other hand, the Democrats' proposals to have new taxes so that the rich would share a burden of social costs, especially of Medicare, seem to have been given the go-by. The deal envisages a reduction of about $2.5 trillion from the federal budget over the next 10 years: the first $900 billion to $1 trillion will come from domestic discretionary programmes that are for the benefit of the poor and the middle class. Almost certainly, the agreement will hinder economic recovery.
For now, the U.S. will manage to escape the consequences of the debt limit showdown, with its credit ratings intact. Various arms of the government will be able to borrow more and honour their commitments. However, it is clear the country's reputation has suffered grievously. The bitterness, division, and dysfunction that resonated around the world in recent weeks as the world's largest economy veered towards default did more than enhance an already existing perception that it was losing its aura. Questions will be asked as to whether it will remain the world's economic haven and the country that is capable of leading the world out of financial crises and recessions. It is now quite uncertain whether the U.S. will be able to cobble together, with other rich countries, stimulus packages to spur the world economy as President Obama did in London two years ago. The desperately crafted budget deal signals a new phase of austerity for the U.S., which might turn more inward-looking. The dollar, for long the world's reserve currency, is already under pressure as investors have turned to gold and strong currencies such as the Swiss franc.
Democracy means compromise. The US debt-ceiling / deficit reduction agreement has left all sides fuming with dissatisfaction but in the mid-to-long term this is good for the US and the world. First, deficit financing that has been the norm in US for decades is on the way out. Numerous corporate tax loop holes are bound to be plugged, defense spending reduced, entitlements such as social security and medicate expenses curtailed. There is consensus among a majority of people and the elected representatives that these steps though unpalatable one group or another, are inevitable. This will make the US dollar stronger. In the short (up to 3 years) term there it will be hard for the middle and poorer classes. Today the dollar note is smilingly accepted in bazaars in far corners of the world. That’s not changing anytime soon. As for the Chinese, they will continue to export to US for decades to come. They have to, in order to keep their workers employed and not rioting.
A group of 60 odd right wing tea party republican congressmen in a house strength of 435 created this self-inflicted injury for US. Though it is very important to cut unwanted spending but the current economic condition in US is not conducive for such acts. Easiest spending cuts can be derived by withdrawing from the wars which in itself will reduce lot of spending. Overall both the parties are doing political posturing for 2012 elections. Domestically, the net losers are middle class US citizens and internationally, US is speeding up it's downward slide. Lessons for India - don't blindly follow western ideas.
It is clear that the supremacy of the US has started declining and though it's debt limit would be increased to save from tag of default nation. It is high time for the US to realize not wage wars against other countries and should utilise trillions of dollars towards health care and social security welfare measures instead of wasting in wars.
Hopefully, this debacle will engender a new attitude toward consumption, and bring down the curtain on gratuitous indulgence without consequence that had long defined the world's largest economy. As much as they prate over rapidly developing economies' growing role in 'overburdening' the world's reserves, the fact remains that the average citizen of the third-world live off a fraction of the resources their more moneyed counterparts do. Maybe it is time for the US to introspect, stop using those gas-guzzling SUVs, stop throwing 6-month-old TVs out of the window, learn to live within your means, don't pile your plate with more than you need, just to waste it when you're sated. Take second helpings if you want more.
Your article is well crafted and well-thought out. However, one point that seems to be overlooked is the fact that the debt crisis showdown has been brought about with more Republicans voting in favor of the legislation than the Democrats. This means that Republicans will be held more accountable if, in fact, this legislation hampers or interferes with economic recovery. US is a democracy of both laws as well accountability. And we have seen plenty of this during these few days. I am not sure if other countries would have been able to stand up to the challenge without a nervous breakdown.
Its an opinion - I guess it would actually be good for nations in long run if they move back from relying on United States for economic assurance. Its time countries invented a native model for economics rather than relying on capitalism.
You are absolutely right: "The country's reputation has suffered grievously." We are witnessing the spectacle of a Communist country, China, advising the leader of the capitalist world about the disastrous consequences of sovereign default. China, by the way, is America's largest creditor as of now. Debt ceiling had been routinely raised 78 times in the past - 49 times under Republican presidents and 29 times under Democratic ones. In this case, the Democratic President was asking the Republican-dominated House of Representatives for authorisation to borrow more so he could pay off the debts piled up by a Republican administration, the Bush administration. It was Bush's reckless policies that caused the present debt crisis.
The tiny fringe that has taken over the Republican Party was anxious to see Obama default and to blame it on him. No president in the history of the U.S. has been subjected this kind of humiliation. But then, the present president is of a different kind.
This opinion is fundamentally wrong in that the author completely ignores the reason of so-called 'far-Right' sections of the Republican party. I will highlight them:
Facts: - About 3% persons pay into the treasury close 80% of all the taxes - US budget grows about 7.5% every year (search US baseline budget), this increase amounts to about $8 billion this year.
Now about this deal: - Does not amend US Constitution to force the govt to balance the budget. - Cuts only about $1 billion in spending (from $8 billion mentioned above), so no real spending cuts. This article blatantly misrepresents the facts and carries the water for far-left / communist propaganda.
Your oped (A Costly compromise) failed to include facts along with opinions. First, issues surrounding $14.3 Trillion dollar debt has no pleasantness surrounding it. Second, caught between default and downgrade, fiscal solutions require managing passion and finesse. Conflicts and acrimony in such conditions are inevitable, based not on dogma, as much as on conviction. It would have been easy for republicans to get more middle class votes by voting for tax increases for few. Likewise, it would have been easy for democrats to 'blame' the republicans. Instead of choosing easy way out, both sides navigated to reach a solution that is politically acceptable with economically sensible. In fact, this is how governance should work. At no point did we see a 'walkout' and some populist drama. Discussions were focused on the issue instead of name calling or sloganeering. That is democracy with accountability. Everyone was committed, not just involved.Other nations may as well learn from that.
The Rich want to hold on to their 'turf',as long as they are not to foot the bill!The billionaires of the US are often found bequeathing large portions of their estates for Charity,then whom are the Republicans representing is a moot question.
Your editorial brings out the tough options before the political parties on debt crisis in USA, and the still more tough task before President Obama in effecting the reconciliation between the extreme Republican Tea Party and Democrats. As of now, the situation arising out of extremism has been averted with global credit ratings of America in tact. In his thought-provoking book titled: 'The End of Free Market' (Who wins the War Between States and Corporates), Ian Bremmer,analyzing the problems facing US, says:"Political leaders will always disagree over how best to target taxes and spending and to reregulate market that undergo structural and technological changes." And he continues:... "That said ,Democrats can do more than Republicans to extol the virtues of markets, because they are the ones who mean to tighten regulation of them in the next several years". Political understanding of the fast-changes due to technology and capacity of the govt. to understand and oversee-- is in focus.
The Indian economy has been known in the world for its soundness. India must utilize all its money in its own welfare only.The depression of 2009 had not much shaken us.A lesson can be taken from US. Keep it up INDIA.
The republican strategy to win the elections in 2012 is to force the Obama administration to fail. To accomplish this they sought to put the Obama government in an economic straightjacket and hinder its ability to stimulate the economy via putting money in the pockests of middle class and poorer sections. The Republicans eminently succeeded in their objectives - namely cut government spending and reduce benefits for the poor and retained Bush era tax write-offs to the super-rich. Now it is fairy certain for the US economy to slide down further and that would probably make Obama lose the election. The Republicans played debt crisis to their benefit to the hilt.
The budget cuts is actually a slow down of rate of increase - not actual cut. As Churchill said, the U.S will do the right thing at the end after everything else failed. So, I will not worry about the reputation of the United States.
The Editorial has mainly spoken about the financial deal clinched. There is another side which is mainly political and has necessarily to be taken care of in view of next year Presidential election and the compromise finally reached speaks volumes about it.
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