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Debt Deal: Now that we are not constrained by our AAA rating..

Paul Krugman Talk

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There are a couple of good things that come out of this..and then there is Krugman, the Tea Party Caucus and the Republican House, and you can be excused for still thinking the Tea Caucus and the GOP are the same.

Yesterday was all about spreading the word of the new deal, all the analysis you heard and saw effectively a left over of what would happen if the deal was struck but some relatively new, a.k.a the downgrade must happen. In the lead, on the networks, Whitney and Group, (Meredith Whitney) following up on her analysis on the states since 2007/8 when she started off on her own after the call on Citi in March2008.

But first, Krugman is always right. And now the ISM numbers back him up. The deal has compromised growth.  Tax reform has replaced calls for increasing public revenues to keep spending alive. And the President never used the option of gunning down all Republican posits with the 14th amendment or any of its derivatives. Granted.

The Tea Party Digression – Death by Public debate?


This Tea Party offshoot is just a part of the aggressively conservative Republicans and not the traditional Republicans. However but these “87 new Republicans” as quoted have brought about that storm in the tea cup that brought America’s wasteful ways to its knees. Imagine being Republican and shouting against profligacy, funded by the largest and the richest monopolist lobbies. The irony is being created by opportunist politics, to be sure, but then the Tea party way is just the thorn in everyone’s flesh and why did anyone chose them to the House in the first place. The best that can happen is that they will not come back with the electorate realising their folly. But then, that may not happen at all. How much is their influence really? I think not much. With the House post past, the Senate yet to vote on the deal, I can still say that in hindsight this Debt ceiling exercise would always be seen as just grandstanding of the worst kind, and happened just because the public unrest has spilled over in the Obama term. That is just what happened 4 years back in the other Developed markets that went to the polls, the unrest of the young making a stand for an unstable government and full chaos in public life. And the US apparently cannot avoid that, anymore. Esp when you let the Republicans speak, and give them a gridlocked House.

Now, back to the deal.

We are all on the super agenda and we have all asked for the same things, it is almost like governments do not matter. First, social welfare costs increase and are not cut. Secondly, Space then Defence is chopped off. That is a lot of waste there and it is a bipartisan deal. Many would secretly prefer that the Joint Committee fail but then now the rest of Defence allocation except veterans and salaries gets cut. The deal first ensured there were no cuts in nominal spending then chopped off growth in spending at the long end. The best that could happen. And Defence has to  pony up for the nation. In that, the deal has probably hurt the least important spending first and Defence and Aviation contractors are the first ones to return unhappy, so that’s a good thing. you would have to however, allow them to go global ( no that is not being partisan either, business needs to do business, that’s all and war has been big business and USA has already done its bit, there would be other customers)

The states being on Ratings watch

I have not found the answer to that. In fact the times I have had the luxury of thinking time on the topic, I have always thought that would be the great unsolved forever. Because the states have been out of pocket for too lang and a substantial amount of their money comes from the Center ( Federal government) leaving Fiscal impropriety and vulnerability to cuts in spending liek the full agenda in any budget exercise, now topped off by a federal downgrade, making it almost impossible for them to raise money. Well then despite the 5 states on Moody’s rating watch and 162 muni bond counties likely going bankrupt, Build america bonds did succeed last year and sooner than later an implied Federal guarantee would tide things over. That should be a good plan for now. The rest of the time required to shout down the rabble rousers in the Tea party.. you think?

And , the good from the downgrade?

With due apologies for seemingly insensitive brevity here, but without much time on hand for this piece, I can just say a very simple fact for the downgrade. a AA+ rating, with marginally higher interest rates, would make you spend more, much more. It is in the nature of that band of countries that are not AAA sovereigns. They are free to spend and are required to spend more. I am sure the Economic Policy Institute and even the ratings agencies can back this up with verified data from the last four or five decades and can say this with more ease. Have downgrade, will spend. So growth  there seems fairly more possible. Unless you go for ill defined cuts like our states and munis have to , and like Greece  and Italy and Portugal have been doing ( Portugal’s example should show how cutting spending may not work to anyone here) I am also not sure not cutting welfare spending is possible all the way but definitely investment and inviting investment is important. As of now only 50% of US government debt is Foreign, what we need is the continuing FDI and local investment to make that impact and for than the army of 20% unemployed across the nation is even free to listen to Glenn Beck ( Maybe I should also apply to the Tea Party..) I’d rather go with Reagan, Clinton and Obama..I like growth.

The last word

It was quite refreshing to see that everyone agreed that we had overspent and that we need to control the amount of debt in the economy..i hope the same public unity is possible with the debate on reducing the deficit and cntrolling the debt without sacrificing growth, which is nether yonder but here, already here..

Ronald and Nancy Reagan at the 1988 GOP conven...

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