Yesterday the United States president, Barack Obama, presented a plan to reduce the nation's deficit by 4.4 billion dollars over the course of the next 10 years. Republicans disapproved vociferously, which intimates that only portions of the legislation will survive. The legislature could make things difficult for Obama, who wants to give voters something to look forward to before the next elections.
Tomorrow the Fed will decide whether to issue another monetary stimulus. If indeed Washington decides to enact measures that reduce the US deficit, then the plan will involve both spending cuts and revenue increases.
The former will be more important than trying to politically sell the Buffet rule (getting more taxes from the super-rich). It is true that the US has sufficient margins to raise rates, but it hitting lower levels than the Europeans and, therefore, the adverse effects on growth will be slight.
Without doubt, debates that began in April about raising the US debt ceiling as ratings agencies threatened to lower the US credit rating have provoked upheavals in the United States' budget policy. And with good reason. Europe is the leading example of how repeated deviation from a budget leads to sovereign debt and financial crisis.
This is something that we cannot allow to happen to the world's foremost economy, when it fears nothing more than another recession. Obama's plan is coming up short by spending too little too late after waiting for confirmation that the country cannot go on living beyond their means indefinitely.
