US debt deal only 1st step on tough austerity journey
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Xinhua, August 2, 2011
First step, tough journey
Some experts held that the deficit cutting in the deal will only go a short way towards slashing the debt, but at least this austerity bill had changed the conversation dynamics in Washington and was a step in the right direction on the longer-term fiscal adjustment path.
Yet the package is far from sufficient to solve the U.S. fiscal problem, said William Gale, a senior fellow at the Brookings Institution. "We are not out of the woods, though we may be a little closer to finding a path," he said.
House Budget Committee Chairman Paul Ryan, a spending hawk, Monday claimed that this deal is a GOP victory, as it has changed Washington's spending spree trend.
The first part of the right-tilted deficit cutting proposal will impose 917 billion dollars in discretionary spending cuts over the next decade, according to the latest analysis from the non-partisan Congressional Budget Office.
However, this bracket of spending programs only accounted for about 12 percent of the combined federal government's annual outlays, while this compromise package did not specify tangible measures to rein in the surging entitlement spending, the major driver of the nation's debt and also a danger zone for any U.S. politician to enter.
The deal will save the U.S. government from defaulting on its obligations, but it does not address the long-term fiscal challenges facing the nation, noted Sebastian Mallaby, a senior fellow at the Council on Foreign Relations.
New worries
Experts held that any relief for Washington observers would be temporary in nature, amid a slowdown of the economic growth pace and a rating downgrade risk.
The U.S. economy slowed to an annualized growth rate of 1.3 percent during the second quarter of 2011, far short of market expectations of 1.7 percent and fresh evidence of anemic economic growth.
The disappointing GDP report also sharply revised the January-March figures from a growth of 1.9 percent to a nearly stalling 0.4 percent, the weakest since the recession ended two years ago, as flat consumer spending and spending cuts from state and local governments undermined the economic recovery.
Monday figures also revealed that the U.S. manufacturing sector, a bright spot of the recovery, continued to lose momentum due to weaker domestic demand, as the U.S. Institute for Supply Management (ISM) manufacturing index retreated to a two-year low of 50.9 percent in July.
Some leading economists including Nobel Prize laureate Paul Krugman believed that against the backdrop of faltering economic growth in the near term, the U.S. government needs to beef up investment and create jobs but not to trim spending.
The deal will "damage an already depressed economy," Krugman wrote Monday in The New York Times, adding that slashing spending while the economy is fragile won't help the budget situation improve.
Moreover, the 2-trillion-dollar-plus deficit-cutting package put together by lawmakers and the White House over the weekend still fell short of the 4 trillion dollars cited by Standard & Poor's to avoid stripping the nation of its top-notch credit rating.
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