The Continental Economics Institute Currency Review
Wednesday, August 3, 2011
The US after the deal - a view from India
The price of brinkmanship
There are no winners and all are losers in the US debt drama
Business Standard / New Delhi August 02, 2011, 0:31 IST
The United States of America has revealed all its weaknesses and vulnerability in the past month of political bargaining and brinkmanship on a national plan for government debt reduction. While the deal at the eleventh hour between the Republican and Democratic parties may have brought the markets around the world relief, sending even Indian stock market indices up and softening the prices of gold and other commodities, these immediate responses hide enduring concerns, both within the US and globally, about the resilience of the US economy, the sagacity of its political leadership and the quality of its economic management. The $2.4-trillion spending cuts, spread over a ten-year period, to which US President Barack Obama has agreed would deflate an already faltering recovery. In a classic pre-Keynesian act, President Obama has surrendered to the domestic Ayatollahs of supply-side economics, now reincarnated as Tea Party enthusiasts in the land of coffee drinkers. That these spending cuts will add to the pressure on US defence expenditure is the least of global concerns. While such spending cuts would weaken the US globally, deep social divisions at home, exemplified by the unwillingness of the rich to bear an additional tax burden and the willingness of politicians to cut medicare and social security spending, reveal the weaknesses of the American society, polity and economy. Taken together with the course of the many wars that the US has been engaged in, and its inability to find a meaningful resolution to the problem of global imbalances, the recent political crisis in the US will only strengthen the view that the world has entered a “post-American” era. A nation at war with itself is unlikely to wage and win wars with others. That, in short, would be the dire conclusion that many may draw from this depressing and distressing game of brinkmanship...