Cuts may lead to political instability in US – Reagan administration official

The US has avoided disastrous default by deciding to cut federal spending by at least $2.1 trillion over the next decade, but cuts may lead to social injustice and political instability, according to a former senior US economic official.

Paul Craig Roberts, an assistant treasury secretary in the Reagan administration, said that the economy will further deteriorate, leading to the US’s deficit widening by a larger amount than the cuts in the just-signed debt-ceiling deal.

“The appearance that debt will be reduced will be wiped out by the new budget forecasts and it will all disappear in the deteriorating economy.”

The US will never default on its debt because it is denominated in US dollars, noted Roberts, saying that the Federal Reserve can create all the money necessary to redeem the debt.

It’s not default that is the problem, it’s whether the continuing rise of the debt causes a loss of foreign confidence in the dollar,” explained the former assistant treasury secretary.

The dollar has been declining relative to other currencies, and this has raised energy prices and food prices in the US, he argued. But the real problem, he claims, is the wars that the US is waging.

The military security budget equals 75 percent of the government’s deficit,” he pointed out. “And yet the Republicans want to continue these wars, and they don’t want to pay for them with taxes. They want to pay for the war by cutting income-support programs for the poor.”

According to Roberts, the spending cuts will produce tremendous political instability.

There will be no extension of unemployment benefits, so the people who have lost their jobs – who are now roughly 23 percent of the work force – will be without any sort of support,” he argued.

As more people become homeless, and as unemployment benefits and medical care disappear, he concluded, many Americans will start protesting in the streets.

Danny Schechter, an American blogger and media critic, also expresses his concerns stating it is American working people who are the losing party of the deal. “By cutting government spending, when you have this kind of economic crisis, you’re likely eventually to intensify the crisis, rather than resolve it,” he insists.

There appeared to be a contradiction after the debt deal has been agreed upon, Schechter claims, as a tiny group of people will now have to decide instead of entire American legislature.

“Moving away from democracy in the name of saving democracy – that’s a big contradiction right there, and I think this is a very divided and polarized country, which is explosive. When people realize what they’ve lost or what they’re about to lose, they will likely react,” Schechter states.

The deal on raising the US debt ceiling sets up a special bipartisan committee which will recommend deficit cuts. The outcome depends on who will be on the committee, says political reporter Zeke Miller from Business Insider magazine.

The 12-member congressional committee will tackle such sensitive benefit programs as Social Security and Medicare in search of ways to cut spending. They need to find a way to trim $1.5 trillion from the federal deficit over the next 10 years. Congress will have until Christmas to vote on the recommendations without the ability to make changes.

The Republicans have said that they will not put any fiscal conservatives on the committee.

If they appoint moderates, there is a big chance that they will reach some sort of deal,” said Miller.