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What China, Others, Are Saying About US Debt Deal?
Debt ceiling raised...again.
President Barack Obama said Sunday night that both houses of Congress finally reached an agreement to reduce the budget deficit and avert a debt default that would have likely sent the country into a recession.
“Leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default — a default that would have had a devastating effect on our economy,” Obama said in his remarks to the White House press Sunday shortly after the bill was signed. The first part of the debt deal cuts nearly $1 trillion from the federal budget over the next decade. Exact details were not immediately available.
“The result would be the lowest level of annual domestic spending since Dwight Eisenhower was President,” Obama said. The debt limit and cut spending between $2 trillion and $3 trillion.
The Economic Times of India polled readers who said overwhelmingly that the Indian market would be impacted on Monday as investors in the US digest this weekend’s news. A total of 85% of the paper’s readers polled on line said it would impact India’s market all week.
Russian newswire columnist Andrei Fedyashin said recently, before Sunday’s deal, that “cuts in social spending and higher taxes are still the only way of reducing budget expenditures and a country’s sovereign debt.”
Yao Yang, director of the China Center for Economic Research at Peking University, weighed in at China Daily. He said that the US deficit problem “is ultimately the result of the conundrum of a welfare state following the capitalist system. Both are uncompromising ideals cherished by a substantial percentage of the population. The fight will resurface in the future even if the present deadlock is broken. There is a lesson for other countries here. The best a country can do is to fence off the contagious effects of such fights and rely more on the domestic economy for further growth.”
Also reprinted in China Daily, Mohamed El Erian, CEO of PIMCO, says, the next few weeks will provide plenty of political drama. “The baseline expectation, albeit subject to risk, is that Democrats and Republicans will find a way to avoid disruptions that would damage the fragile US economy, but that the compromise will not meaningfully address the need for sensible medium-term fiscal reforms.”
In Brazil, an article in Folha de São Paulo, the country’s largest daily newspaper, said that Americans woke up too late to its serious spending problems. Not only government spending, but consumer spending as well. A foreign correspondent for the paper interviewed US think tanks and scholars who said that the average US citizen was “uninformed” about the country’s economy and pending debt crisis. Despite having nearly every country south of Texas run into similar debt dead ends, the US — printers of the world’s reserve currency and the largest economy — didn’t seem to flinch when society, and government, became overweight with debt. The US is in a unique world situation because of its status as world’s reserve and trade currency, and issuers of the most trustworthy debt in the market.
“Americans are not well informed about the economic crises that occurred in other countries to learn from them,” said Isabel Sawhill, an analyst from the Brookings Institute in Washington. “They don’t see any parallels with crises in other countries because they think the US has the capacity to resolve all problems.
The population knows there is a problem, they just don’t know to what extent or where it comes from.”
Linda Bilmes, a former government consultant turned Harvard lecturer in Cambridge, the main problem with the debt deal is taxes and political ignorance over tax laws. “The biggest reason our debt is so high is because George W. Bush cut taxes two times exactly when we were spending money on two wars,” Bilmes told Folha. “In the last two major US wars, taxes went up to support those expenditures.”
See: White House, Congress Reach Debt Deal
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