‘Let’s raise debt and talk deficit later’

"Raising a debt ceiling was a patriotic thing to do"
In the US, the Obama administration is signaling it will support a short-term extension of the debt ceiling – if there is an agreement to cut the deficit.

­Earlier President Barack Obama welcomed a bipartisan Senate proposal that includes spending cuts and new taxes – with only two weeks left to avoid a looming default.

The cuts do have to be made, but the question is where are the cuts are going to come from, says Neil Sroka, press secretary for the Progressive Change Campaign Committee. Will it be, he asks, seniors and working families, or the richest of the rich, who have been benefiting from the Bush tax cuts and other benefits over the last decade?

“The deficit is clearly a problem, we’ve got to do something about it, but how we deal with that and fix that problem – that is what this debate is about,” he explained. “The last thing we need to do is tie the debt ceiling argument to the larger deficit ceiling argument.”

If Obama make cuts to Medicare and Social Security benefits, “people are going to lose faith in this president – if he allows the richest of the rich to benefit from these deficit talks,” Sroka declared. “We should push for clean debt ceiling talks” and have “a clean up-and-down vote on it.”

“Today members of Congress are pushing around Ronald Reagan’s statement back in 1987, when he said, ‘raising a debt ceiling was a patriotic thing to do,’” he added. “It is time for Republicans and Democrats to do the patriotic thing: raise the debt ceiling and let’s have this talk about the deficit afterwards.”

The ramifications from the outcome of the talks in Washington will be felt around the word, says a former senior economist at the IMF and currently lead economist at Global Financial Integrity, Dev Kar.

“The US is still the elephant in the room, regardless of the recent talks about decoupling the emerging markets from the US economy,” Kar said.

If the US defaults on its debt it would have disastrous aftershocks worldwide because US financial instruments will plunge and interest rates would spike, Kar predicted.

But the US is neither Greece nor Spain, Kar added, and its resources and the size of its economy are incomparable to the problems in Europe, so the processes in America would pass in a smoother manner without the kind of public unrest registered in European countries. The adjustment will nevertheless be painful, Kar warned.

The US has the dollar, the leading reserve currency in the world, and “by that fact alone it has greater latitude than Greece – which does not have a currency of its own.”