A sudden crisis is unlikely. Other rich countries with far bigger debts relative to the size of their economies, from Italy to Japan, have soldiered on without hitting a wall. Stable politics, transparent laws and economic dominance give America unequalled credibility with lenders. For all the anxiety the declining dollar drew from China this week (see article), it has no serious rival as the world’s reserve currency. America has sensibly used this fiscal freedom to enact an aggressive stimulus programme. This should be maintained for as long as it is needed.

Yet ignoring the future is also costly. The problem is not the deficits in the next couple of years, but in the years that follow. Uncertainty over how taxes may be raised to shrink deficits may already be weighing on business confidence. Worries about inflation or default could start to push up interest rates. Eventually, private investment will be crowded out.

Barack Obama and Congress can pre-empt such corrosive uncertainty with a plan to reduce the deficit now. Far from requiring immediate spending cuts or tax increases, a credible plan would reassure markets and allow an orderly exit from fiscal stimulus. The Federal Reserve provides a model: it does not plan to tighten monetary policy in the near future, but has signalled its willingness to do so when inflation threatens.

Read it carefully and read it all.

Filed under: * Culture-Watch • Aging / the Elderly • Health & Medicine • --The 2009 American Health Care Reform Debate • * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government • Budget • Federal Reserve • The National Deficit • The United States Currency (Dollar etc) • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate

1. tgs wrote: Just more of the same old tax and spend while putting the burden on tax payers to pay for all this nonsense. How about instead killing the Fed and returning to a hard currency to control spending (no more printing press to pay for unconstitutional government programs and to rob from the poor to give to the rich), plus just plain reducing the size and power of government to that stipulated in the Constitution? Seems to me that’s a much better solution than just finding new ways to force citizens to pay for this bloated and unconstitutional government through new taxes and fees as this article is suggesting and plus has the added benefit of restoring individual liberty and a free economy to America. November 24, 8:32 am | [comment link]

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