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O Globo, Brazil

Deal on U.S. Debt Ceiling Shows American 'Strength'


"The United States is setting a most visible example. Ö There was no way to escape this adjustment, even if the country issues the globe's reserve currency - a condition that will long continue despite the crisis."




Translated By Brandi Miller


August 3, 2011


Brazil - O Globo - Original Article (Portuguese)

Chairman of the House Budget Committee Paul Ryan: Still licking his wounds from criticism following the release of the "Ryan Budget," the apparent victory of the Tea Party in debt ceiling talks has given added impetus to he and the rest of the U.S. Republican leadership.


FINANCIAL TIMES VIDEO: Prepare for new round of quantitative easing after deal to raise U.S. Debt ceiling, Aug. 1, 00:04:50RealVideo

Among the many dates to go down in history since the 2008 outbreak of the global financial crisis, August 2, 2011 will hold a prominent place, being the day on which the United States escaped an unprecedented default. Overcoming a tough standoff between Democrats and Republicans, the House of Representatives on Monday approved spending cuts that permitted authorization of an increase in the public debt ceiling. Yesterday the project received the Senateís endorsement and was quickly approved by President Barack Obama.††



Tough talks between the parties and the White House on authorizing a rise in the debt ceiling beyond $14.29 trillion - without which the country would technically have been in default - has left a residue of tension. There is a sense of defeat among Republicans and Democrats. The Democratic left accuses Obama of having given in on one of the party's central tenets: cuts in social programs, which can be executed automatically if the bipartisan commission created to propose adjustments in a second stage of spending cuts doesnít arrive at a consensus. Thatís true, but Obama and the Democrats did manage to disarm the Republican trap of raising the debt ceiling in two stages, so that the second one occurs before the presidential elections of November 2012. Imagine if yet another chance of default arose during the campaign.


In exchange for cuts of between $1.2 trillion and $2.4 trillion over ten years, and after having backed down on tax increases for the wealthy, Democrats had that draft provision withdrawn. So the debt limit has been raised by $900 billion now, and later, by $1.2 trillion - so that the White House doesnít need to deal with this again before under a new government in 2013. But there will continue to be great bargaining with over cuts. There are differing perceptions about winners and losers. Yet in situations like this, there will always be contradictory views on tradeoffs. You win some and you lose some with these types of agreements. That's the game.


Once again, the American institutional system has demonstrated its strength. The United States is setting a most visible example, even by demonstrating the influence of the conservative and radical Tea Party movement, a kind of Republican sub-narrative. This is also an important lesson on the tax issue for Brazil. It is critical that our country mobilize. This is not something that can be dealt with behind closed doors by alleged luminaries.


The United States, due to measures taken to prevent a banking meltdown and revive the economy - which have yet to have a major effect - increased the size of its debt-to-GDP and began accumulating an annual deficit of 11 percent of GDP - an unsustainable situation. There was no way to escape this adjustment, even if the country does issue the planet's reserve currency - a condition that will long continue despite the crisis. The public accounts don't respect voluntarism from the powerful. As economist Ilan Goldfajn alerted us in an article in O Globo yesterday, Brazil is already late in formulating a medium- and long-term plan for fiscal adjustment, which is directly related to interest and exchange rates. It is best to do this calmly.



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[Posted by WORLDMEETS.US Aug. 4, 3:49pm]



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