"Is US debt sustainable?" This is the question that is in everyone mind these past weeks. With a 90% of GDP plus debt, a struggling economy and huge Governmental spending, the answer is probably not. And that drives a few thoughts on itself:
- how was it possible to move from a Governmental surplus in the Clinton era to this situation? Well, the answer combines tax cuts (done by the Bush administration on top income) and an escalation of costs, namely military - all the show-off on anti-terror efforts and fighting 2 wars in Iraq and Afghanistan have huge costs! That drove the US budget towards disaster... And enhance that with a complete lack of attention to American competitiveness and economic situation.
- So, this actually means that the true responsable for this situation is really the American voters. Congratulations for prefering George W Bush to Al Gore and for reelecting him when you already had all the information about this huge disaster...
- What to do? Actually Obama started by doing the right thing in some dimensions - he was able to coordinate the pull-off from Iraq and he is doing the same thing in Afghanistan. He is also trying to stimulate the economy - but through subsidies. The problem is that US is losing competitiveness fast, and needs strategic direction - but how can you do it with a split Senate and Chamber?
- If US debt is not controlled, we should expect to see debt rating degradation. Actually, nowadays, US debt is probably already overvalued - I strongly doubt that it should be an AAA title. But debt degradation will mean that interests would rise - and the consequences would be devastating for all the individuals that have massive credit (housing, cars, personal goods - and we know how americans are indebted), banks that borrowed them (we should expect individuals defaults to hit new highs) and companies (both from a crash in consumption of goods, but also due to higher investment costs). A debt degradation of the US economy would throw it off a cliff. The point is it seems unavoidable...
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