August 3rd, 2011
06:14 AM GMT
They bicker. They point fingers. They reluctantly agree to do something they really don’t want to do.
This is not a primary school classroom. This is the United States Congress.
A recent CNN poll shows that more than 75% of Americans feel their lawmakers have acted like “spoiled children.”
The debt deal may now be signed but there’s still a lot more to be done. I asked several experts for their take on the classroom brawl and what homework they’d assign.
1. Spend less.
“Longer term any agreement on the ceiling addresses the symptoms and not the causes. The U.S. needs to reduce spending, raise tax revenues, curb unnecessary consumption and bring the budget back towards a balanced position – spending more does not solve the problem.”
Mark Konyn, CEO of RCM Asia Pacific
2. Pay attention to growth NOT the debt.
“It’s going to take time and effort to get the debt-to-GDP ratio down to a manageable level. It’s somewhat more difficult than usual because you have the retirement of…the Baby Boomers who are going to go from paying a fair amount in taxes to retirement whereby they will draw on Social Security, Medicaid and Medicare.”
Sean Egan, Principal, Egan-Jones Rating Company
(NB: Egan-Jones downgraded the United States’ AAA credit rating to AA+ on July 16, while the IMF projects the U.S. debt-to-GDP ratio to be 98.3% in 2011.)
3. Face reality and raise taxes
“I think what matters is the world is looking at the United States. We’re heading into the fourth year with a 10% of GDP deficit with parties that are denying reality. One’s saying 'No taxes.' The other says, 'You can’t touch entitlements or Social Security.' That’s the thing that should be scaring the world.”
David Stockman, former U.S. Budget Director under U.S. Pres. Ronald Reagan
4. Hey investors, look to the sidelines!
“Emerging Market (government bonds) in Asia will benefit… Emerging markets are in relatively good fiscal shape like China, Singapore, Taiwan or even Indonesia where we’ve seen sovereign finance improve dramatically over the last few years.”
Yonghao Pu, Chief Investment Strategist, UBS Asia Pacific
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