No need to panic over the USA debt crisis

Posted By: Peter Evans
Date Posted: 28/07/2011

Everyone seems to be panicking over the US debt crisis. While it is true that if the worst happened and the USA went into default, it would produce a catastrophic economic event of enormous proportions, the impact of which would reverberate across the world, it would damage virtually every nation’s economy - including the UK’s of course. (This is why I feel it appropriate to share this information with you).

I confidently predict that it will not happen! The USA is definitely not insolvent – unlike some of the EU countries whose problems are both economic and political; in the USA the problem is purely Political. Only the Congress has the authority to raise the debt ceiling – not the President.

A very brief explanation as to why the USA has reached its current crisis is down to the USA being a nation born and developed on the principle that it gives everyone the freedom to decide his or her destiny – win or lose. That has made it a consistently very low tax country (it has the lowest taxes of any rich nation).

Under George Bush expenditure began to outstrip government income. Under Obama this situation has become steadily much worse. The USA now has a political impasse. Its Constitution does not allow any aspect of the public debt to be questioned. Hence there is now a lot of political posturing.

The Democrats don’t want taxes raised because they claim it would hit the poor: the Republicans don’t want taxes raised because they regard it as the first step towards establishing a revenue raising mechanism that would encourage Presidents to increase spending: they fear the kind of welfare arrangements which exist in the UK for instance. They regard us as a “nanny state” and one that provides financial assistance to those who have never contributed to the economy of the UK and lacking a robust procedure to control expenditure or to tackle abuse.

In the UK there have been challenges for the Chancellor to move policy this way or that – nearly all of these have used the USA crisis to justify their points. I believe that history will prove them all wrong. I believe that in September 2011 the growth figures will show a marked improvement and there will be further evidence of a recovery on track.