U.S. Risks 'Plunging
World' Into New Financial Crisis
"Stock markets would probably respond with shock. The entire world would feel the consequences. ... That's the frightening thing about America's 2011 'summer theater.' We can no longer take for granted that politicians will do the obvious. Donít they see the harm they are conjuring up? Seen from abroad, this seems like reckless behavior to say the least."
The clock is ticking
relentlessly. If Congress doesn't act, in three weeks the United States may not
be able to pay all of its bills. The government will then have to decide
whether it should stop interest payments on loans and go into default, cease
paying social security benefits or furlough government employees. Stock markets
would probably respond with shock. The entire world would feel the consequences.
Never before has the largest free market on earth had to explain its incapacity
to cover its debts.
Congress can prevent that. Democrats
and Republicans must agree to raise the debt ceiling and allow the government
to borrow more money. But both camps will only agree under certain conditions. Republicans
are demanding: save, save, save and no tax increases. Democrats say: No cuts in
social services and higher taxes for the rich. So far there is no consensus in
sight. Agreements that were discussed on Friday no longer applied on Sunday.††
Thatís the frightening thing
about America's 2011 "summer theater." We can no longer take for
granted that politicians will do the obvious. Donít they see the harm they are
conjuring up? Seen from abroad, this seems like reckless behavior to say the
least. Republicans and Democrats both insist on maximalist ideological
positions, thus risking plunging the world into a new financial crisis.
Upon closer inspection, however,
both sides have good reason for their tough stances. The responsibility for
oneís own country takes precedence over responsibility to other countries. The
U.S. must economize - not just a little, but quite a lot. On this issue, the
Republicans are in the right. One third of current U.S. expenditures are now
financed by new loans. The total debt has reached $14.3 billion - which is 100
percent of America's gross domestic product. The primary reason: tax revenues
fell dramatically during the financial crisis.
However, it would be an
illusion to assume that all one has to do is to wait for the next economic
upswing and everything will work as it did before. It will take America years
to emerge from this crisis. That is why, in addition to cutting expenditures, balancing
the budget will require higher revenues - revenues that should be raised by raising
taxes and eliminating tax cuts on the rich. Here the Democrats are in the right.
In the end, Republicans and
Democrats will probably reach a consensus. But we canít be sure. There remains
a residual risk that ideology will trump responsibility.†
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