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Iwan Morgan

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  • The debt deal in sight - but what next?

    To the relief of financial markets from the Far East to London and by now Wall Street, the congressional leadership appears to have a debt limit deal to hand.  Assuming that it gets approved by both Houses, however, the debt problem is simply moving onto a different level rather than being resolved.

    There's still a danger that the current imbroglio over debt limitation will result in a downgrading of the US debt by credit rating agencies.  That's less serious than would have happened in the event of a default, but lenders could interpret it as signaling that the US is no longer risk-free in terms of debt repayment.

    More significantly for those of us more interested in the impact of the debt issue on ordinary people, there's a lot of politics still left to flesh out the details of the debt limit agreement.  There's still room for revenue enhancement and a portion of the spending retrenchment will come from the rundown of US involvement in Iraq and Afghanistan.  But that still necessitates a big bite out of federal domestic spending.

    Whatever the distribution of the eventual fiscal retrenchment that will follow a debt limit deal, the effect on the economy is likely to be contraction.  There is a school of economic thought which argues that fiscal austerity brings expansionary ben


  • The Perils of Moderation

    In the past Europeans have often been critical of American political parties for being non-ideological coalitions dedicated to election-winning and deal- making.  Now these distant days seem like a golden age of common sense and pragmatism!

    We hear a lot over here about Republican ideological commitment, currently manifested in intransigence over raising the debt limit.  But we're not sure what to make of the Democrats.  If American politics is polarized, it's difficult to make out where President Obama's party is situated.  They are certainly nowhere near as liberal as the Republicans are conservative - in fact, the partisan battle seems to be right v center-right rather than right v left.  Paul Krugman's commentary "The Centrist Cop-Out" in yesterday's New York Times has certainly resonated over here.   

    President Obama has made so many concessions to the Republican preferences on taxation and spending that it is difficult for us outsiders to make out what the fight is all about.  The agenda seems dominated by the party that controls just one chamber of Congress, while the party that controls the other chamber and the White House appears in retreat from power.

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