Fed chairman warns US lawmakers on impact of 'fiscal cliff'

 

US Federal Reserve chairman Ben Bernanke

Source: Press TV

http://www.presstv.ir/detail/2012/11/21/273685/us-lawmakers-alarmed-on-fiscal-cliff/

US Federal Reserve chairman Ben Bernanke has once again warned American legislators to ward off the abrupt and severe combination of legislated tax hikes and federal spending cuts, known as ‘fiscal cliff,’ due to take effect by the end of the year.

In a Tuesday speech at the New York Economic Club, Bernanke described fiscal cliff as a “substantial threat” to the country’s economic recovery and urged US lawmakers to put aside partisan political rivalries to avert the massive financial impact on the nation’s already slow economy.

‘‘Uncertainties about the situation in Europe and especially about the prospects for federal fiscal policy seem to be weighing on the spending decisions of households and businesses as well as on financial conditions,’’ he said, adding, ‘‘Such uncertainties will only be increased by discord and delay.’’

According to reported estimates, the impact of the scheduled federal spending cuts and the expiration of temporary tax breaks will take at least USD 500 billion out of the US economy, threatening to push it back into yet another recession.

Citing several outside economic assessments on the enormity of the ensuing tax hikes and spending cuts, Bernanke said ‘‘a fiscal shock of that size would send the economy toppling back into recession.’’

This is while the Obama administration and Congress are still negotiating over an agreement to reduce the government's massive budget deficit, which has exceeded USD 1 trillion for a fourth consecutive year.

The last time the debt limit was about to be reached, Republican lawmakers in the US Congress waited until the very last minute before deciding to raise the limit.

Saying "the deficit is on an unsustainable path," the Fed chairman further added, ‘‘As you will recall, the threat of default in the summer of 2011 fueled economic uncertainty and badly damaged confidence, even though an agreement ultimately was reached.’’

‘‘A failure to reach a timely agreement this time around could impose even heavier economic and financial costs,” he warned.

Ron Paul: America has already gone over the fiscal cliff

 

Former Republican presidential candidate, Representative Ron Paul (T.J. Kirkpatrick/Getty Images/AFP)

Source: Russia Today

http://rt.com/usa/news/paul-fiscal-cliff-obama-364/

US President Barack Obama demanded from Congress immediate action to prevent America from falling of a so-called fiscal cliff, but Rep. Ron Paul (R-Texas) says it might be too late to keep the country afloat.

Speaking with Bloomberg Television on Thursday, the lawmaker who ran against Pres. Obama during the last two elections said he expects that America’s financial woes are beyond repair.

“We’re so far gone,” said the congressman, who will retire from the Hill this year after serving 12 terms in the House. “We’re over the cliff. We cannot get enough people in Congress in the next 5 to 10 years who will do the wise things. We have to prepare for having already fallen off the fiscal cliff.”

On the campaign trail leading up to the Nov. 6, 2012 election, Rep. Paul proposed an array of ideas he said would save the country from economic disaster, including returning to a gold standard and abolishing the Federal Reserve, America’s central bank. On his part, Pres. Obama vowed to keep the company in tact if elected to a second term, and Friday told reporters at the White House that he expects Congress to come to his side and do what’s right to prevent what Rep. Paul says is inevitable now.

“I’ve invited leaders from both parties to the White House next so we can start to build consensus around the challenges that we can only solve together,” said the president in reference to worries over America’s fiscal standing next year. “At a time when our economy is still recovering from the great recession, our top priority has to be jobs and growth.”

“We can’t just cut out way to prosperity,” said Obama. “If we’re serious about reducing the deficit, we have to combine spending cuts with revenue. That means asking the wealthiest Americans to pay a little more in taxes.”

“I’m not wedded to every detail of my plan,” he said. “I’m open to compromise; I’m open to new ideas.”

According to Rep. Paul, that’s just more pandering from the president.

“They’re just looking for the truth,” said the congressman. “They say, ‘Well, all we need is a little compromise.’ Well nobody expects that because they do not admit the truth, and the truth is that we are broke.”

“How do you compromise? The only way you can compromise is if you agree on what to cut.”

From the White House on Friday, the president said, “The American people voted for action, not politics as usual,” and insisted that “What the American people are looking for is cooperation,” consensus and common sense from the government. “Most of all they want action,” he added, insisting, “I intend on delivering for them during my second term.”

Rep. Paul tells Bloomberg it’s a “bad sign” that the public, not the president, is on the receiving end of however the White House tries to fix the country’s financial woes. “People do not want anything cut,” he said. “They want all the bailouts to come. They want the Fed to keep printing money. They do not believe we have gone off the cliff or are close to going off the cliff.”

 

US austerity? US 'fiscal cliff' would trigger cuts of up to 5.1% GDP

 

US debt clock (Alex Wong/Getty Images/AFP)

Source: Russia Today

http://rt.com/business/news/usa-debt-ceiling-opinion-798/

As US public debt is about to rise over the limit of $16.39 trillion, analysts warn of the drastic damage it could create. Should the debt limit remain unchanged, the US economy will have to suffer austerity measures worth around $804.5 billion.

The debt held by the public skyrocketed to about 102% of the US GDP in 3Q 2012. The ratio was higher only once in the US economic history – in 1945 when it reached 113% of GDP.Meanwhile, a new so-called “debt ceiling”, that was last raised by Congress in January 2012 to $16.394trln, seems to be not high enough, as the figures show that the room for further borrowing is becoming increasingly narrower.

Earlier this week the US Treasury said the country was set to hit the debt limit by the end of the year. Meanwhile the Treasury has continued to unveil borrowing plans that include massive bond issues, which will inevitably drive the US economy deeper into debt.

If the US Congress does not raise the debt ceiling in the next few months, it would result in an “onset of austerity measures worth 5.1% of American GDP,” or $804.5bn, Margaret Bogenrief from ACM Partners told Business RT.

“The world currently sits on the precipice of a debt cliff – the rate of debt growth for the United States is, economically, unsustainable and must be curbed within the next 5 years,” added Bogenrief. A combination of increased taxes and limited spending would pave the way out of the debt hole for the US, the ACM Partners expert added.

While the need to curb the extravagance of the US – a nation of debt lovers – is clear, a collision of the economic and political reasoning is now one of the main stumbling blocks, according to Bogenrief. Economically, continued growth of US debt will keep on weighing down and destabilizing the American economy. But politically, lower Government spending and higher taxes would not be popular among US citizens.

Also, there’s “a collision between what Americans say they want versus what they prefer in reality – it’s easy to say we need to cut spending and raise taxes – as long as we cut spending allocated to other people while raising other people’s taxes,” Bogenrief concluded.

While allowing a broader opportunity for increased consumption, excessive borrowing can pose a real economic threat long term, Max Wolff, a NYC-based economist, added to Business RT.

“Consistent US debt growth is a short term boom to the US and global economies. It allows greater growth and demand now in exchange for increased financial fragility and lowered growth and demand in the future. This is the essenece of debt. Debt moves purchasing power through time. It is sustainable when it pays for greater growth in incomes in the future. If this fails, it is very dangerous,” the economist explained.

“Some amount of borrowing is necessary for any industrialized economy. For the past four years, however, the United States has averaged $1trln +in annual deficits – the growth in debt is unprecedented in American history, unsustainable, and has no easy answer in sight,” Bogenrief concluded.