11/16/2011 6:37 PM ET|
Will DC wreck the economy again?
Back in the USA
Similar dynamics are playing out here at home as Democrats and Republicans knock skulls over taxes, spending and the deficit. Their constituents scream for jobs, while groups like Occupy Wall Street, Grover Norquist's Americans for Tax Reform and the Tea Party press hard for competing demands.
The unwillingness to make politically risky choices is why, back in August, when the deal to raise the debt ceiling fell short of what was needed to stabilize the fiscal outlook, Standard & Poor's cut America's AAA credit rating. The market hasn't recovered from that downgrade.
Congress committed to budget savings of less than $1 trillion over 10 years, with an additional $1.2 trillion hopefully coming from the select supercommittee. S&P was looking for something closer to $4 trillion in savings to keep the U.S. rated AAA. The analysts added that the government was losing its ability to manage public finances, due to "America's governance and policymaking becoming less stable, less effective and less predictable." This interparty bickering, which took the country to the verge of a government shutdown and default on its debt, "weakens the government's ability to manage public finances," they suggested.
America faces stark choices, tight deadlines and scary consequences for inaction, too. Yet politicians continue to dance around the inevitable, unable to compromise and unwilling to do the honorable thing: sacrifice their political careers to do what's right for the country.
The US debt picture
Even assuming the supercommittee gets a deal proposed in time for Thanksgiving and it gets passed by Congress for Christmas, America's debt will continue to grow. Analysts at S&P expect that, assuming the Bush tax cuts are extended for the majority of Americans (a stimulus measure that enjoys a modicum of bipartisan support), net government debt would rise from 74% of GDP this year to 85% by 2021. So more spending cuts and higher taxes will still be needed.
But if Congress fails to act, the $1.2 trillion in automatic cuts kick in (hitting defense spending hard), the economy will weaken in the face of Europe's tailspin, S&P would likely cut the U.S. credit rating again (to AA from AA+) as the net debt load swells to 101% of GDP by 2021 and the government reinforces the notion that the country is ungovernable.
That, no doubt, would result in a harrowing repeat of the early August market collapse. A drop in financial wealth, and lost confidence, would push the fragile U.S. economy down into recession with the eurozone. China and the other emerging-market economies couldn't maintain their growth with the world's two largest economies in the ditch.
With a week to go to the Nov. 23 deadline, things aren't looking good.
Republicans have proposed a $1.2 trillion deal (the bare minimum) made up of $750 billion in spending cuts and $300 billion in new taxes, which come from lowering overall rates but capping deductions and tax credits.
Democrats have rejected this, arguing it would increase the burden on middle-class families. They've put forward a $2 trillion deal with equal shares of cuts and taxes. Republicans claim Democrats are resisting cuts to Medicare -- a shame, because medical spending is the main driver of the long-term budget mess.
News reports are filled with rumors that members of Congress are laying the groundwork for failure as the two parties remain far apart on taxes, Medicare and Social Security. There are efforts to save the Pentagon from the deep automatic cuts that would kick in if no deal is reached. There is also chatter that tough decisions on taxes, including the Bush tax cuts, could be pushed back until after the 2012 presidential election.
In other words, they're trying to kick the can down the road again.
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Will Washington D.C. wreck the economy again?
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Lets start with pay cuts for congress and the president, all of them , not just the active ones, but the retired ones too!
Stop wasting money on "the war on drugs", it's not working! Drug use has to be eliminated on the demand side, not the supply side. There will always be a supply as long as there is a demand for it. You can't stop it. Focus on prevention ,education ,and rehab!!!
Cut other wasteful grants to the rich and spending on "rich man's follies".
Stop acting as the world's police. It's not our job, and we do not have the right to tell other nations how to live.
This country will not be righted until we remove ALL of the current politicians and we start from scratch again. Our "trusted servants" have been bought and paid for by private interests.
It is treasonous that a congressman or senator would sign a pledge to ANYTHING OTHER THAN THE UNITED STATES OF AMERICA.
How could we let them proudly tout that they signed a pledge to Grover Norquist?!?!?!
Seems like there is a conflict of interest to me. NO politician to go into office that way. It should be the American People's interest they are there to serve, no matter what. If it's best for the country to raise taxes, then so be it. If it's for the best of the country to lower taxes, then so be it. The issue should dictate the resolution, not some treasonous pledge to Grover Norquist.
Simply stated, the problem is: Too many politicians making too many promises, and spending too much money that they don't have.....with no way to pay it back.
That's the European problem in a nutshell. And the American problem as well.
I especially loved the line in the story about austerity being "politically unpalatable". Translation: The politicians are more concerned about saving their jobs than solving the problem.
When you spend over 800 billion dollars perpetuating a lie it does the economy no good.The wars in Iraq and Afghanistan are the major causes of our debts. that and run amok spending by Congress and their entitlements. We had no reason to go into Iraq and Afghanistan other than the idiots in Congress were duped by Bush and his band of idiots. We spend/handout billions to foreign countries to help with their infrastructure, education and socila programs while here at home we have returning verteran unemployment at 12%. We have people living on the streets, our roads and bridges are crumbling, our education system is worse than that of some third world countries. I say "AMERICA FIRST"!!!! We need to stop being the worlds policeman, we need to stop being the social conscience of the world. When we have every citizen here fed, EMPLOYED, housed and all our needs met here for our country and people then maybe we might look at helping the rest of the world. Until we reach that point we need not to hand out money to help out foreign countries. And if Congress cannot do the wishes of the people then they need to be replaced. We hired them, WE CAN FIRE THEM! But the American people`s needs must come first before some foreign country plain and simple. I myself don`t care what the rest of the world thinks about us. Do you?? I served my country in the military and have seen some of this. It is time for a change!!
Until this administration understands the following, nothing will change. It will only continue to deteriorate.
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody, anything that the government does, takes first from somebody else.
4. You cannot multiply wealth by dividing it.
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they worked for, that is the beginning of the end of any nation.
This scenario is being played out in Greece, Italy, Spain and France. If we don't get our own house in order quickly it will soon becoming to a theater near you.
Vote the bums out in 2012!!!!
I am willing to accept a cut in my Medicare when Washington eliminates their pension plan and increases their benefits contribution to at least 40% of the premium we taxpayers are stuck with!!
That will never happen because of their greed! They believe they are entitled to as much of our hard earned wages as they want!
Rigs1950....good points...I totally agree that an uneducated electorate put us in the mess we are in voting on promises made by lying politicians.
The politicians in DC have not just wrecked the economy, they have wrecked this country and we the people better wake up and stop what is going on before it is too late.
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[BRIEFING.COM] The Federal Open Market Committee has just released its latest policy directive, which announced another $10 billion taper, lowering the pace of asset purchases to $15 billion per month. As expected, the Federal Reserve maintained the "considerable time" language in its forward guidance, suggesting the first rate hike remains somewhat distant. On that note, the economic projections that were also released indicate the Fed sees the fed funds rate at 1.375% at the end of 2015. ... More
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