America’s substantial federal deficit problem, both for the near term and over the looming long run, captures headlines. A long march through a thicket of forecasts and fixes reveals the immensity of the deficit and the complexity of the intertwined factors and policies creating the deep fiscal hole. However, advancing through the repair proposals of leading legislators unveils the substantial disagreements in outlook regarding a solution. Even in Washington, differences in political perspectives on “economic” matters sometimes represent really serious sharp splits.
Called to action by the need to seriously attack the issue, confronted by the imminent August 2 deadline for boosting the deficit ceiling, the President, Democrats, and Republicans squawk, squeak, and squirm. Few budget combatants want a default, or even a reduction in America’s credit rating. Matters of principle and 2012 election politics will interrelate both to avoid debt default and to defer any noteworthy substantive resolution of the fiscal challenge. Since such a temporary compromise is not a genuine solution, the United States fiscal disaster will continue to beleaguer financial marketplaces.
In the Civil War, so-called neutral nations such as Great Britain and France were quite interested in the war’s outcome. America is not divided or cut off from the rest of the world, especially these days. In regard to the US’s current budget battles, not only its citizens but also countries around the world closely monitor events and trends. Like sovereign debt problems on the European periphery, America’s fiscal issues have global implications. Plus what occurs in debt and interest rate theaters has implications for stocks, currencies, and commodities. For example, if the American deficit crisis worsens significantly, what will the collateral damage be? Will stocks in the US as well as overseas nosedive? Will there be a renewed assault on the dollar?
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