17 October 2013, 18:38

US Default – Risks remain

конец шатдаун Капитолий Конгресс США

We are talking about the final aversion of the technical default on the Government debt in the US. Eleventh-hour deals have been reached and, therefore, the world is saved yet again. Nobody believed that there would be a default, because it would have been disastrous. And no politician would ever want to assume the responsibility for causing such havoc around the globe. 

Why does the world have to depend on political intrigues by elected politicians in the world’s largest economy? What to do with this ongoing situation? Who is actually to blame? What can be done to prevent this from happening again? And what is it we should expect?

Our guest speakers are Dr Richard Wellings – Deputy Editorial Director at the UK-based Institute of Economic Affairs and Patrick L Young head of DV Advice – Poland-based consultancy firm.

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Dr Richard Wellings – Deputy Editorial Director at the UK-based Institute of Economic Affairs.

I think the temporary nature reflects a desire to have a solution that saves face on both sides. It at least gives a few months of stability. I think the people are worried about the US’s reputation, that it is no longer seems like a mature and stable democracy when you see this kind of bickering that has potentially very serious consequences.

In terms of the US’s share of global GDP, it is no longer the big beast that it used to be in the post war period. And clearly, the current levels of the US debt are unsustainable. So, eventually we will probably see either higher inflation or we will see a lot of the promises to the US citizens on wealth and things like social security and medic aid – some of those promises are going to be broken. There won’t be an official default, but in practice it will be a default in one form or the other.

Probably, a fair fraction of the debt is due to the war on terror, the overall cost of that has been enormous. There are a lot of knock-on effects and resources misallocated towards military spending rather than more productive parts of the economy.

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Patrick L Young – the Head of DV Advisors – Poland-based consultancy firm.

Because it is the world’s financial economic superpower the US has incredible kudos and, therefore, incredible power within the world. But ultimately, the problem is that it also happens to have one of the most stunningly dysfunctional examples of democracy that we know. Pres Obama really doesn’t know how to manage his way of out of a paper bag and clearly isn’t actually economically literate. Add to it some fractures and rather annoying opposition politicians, the result is that the rest of the world is being held to ransom by the incredibly juvenile American political system. The whole affair, even though it may be resolved for the time being, has damaged the standing of the US.

The primary person to blame is clearly the President. He at all points in time has proven incapable and is not willing to take charge. Obama has taken the previously spendthrift administration’s program and ended up spending really like a footballer’s wife on steroids. Mr. Obama wants to keep spending and the opposition and the Tea Party republicans are quite at the opposite extreme.

We’ve got to win the American economy of its incredible debt habit and that’s going to mean a lot less money for Government programs in the course of the next number of years. Therefore, Mr. Obama is going to have to restrain his rampant desire to spend. His desire for a socialist nirvana in the USA is simply unaffordable.

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