Political War Endangers U.S. Economy

United States political parties must keep this in mind: It is no time for a political war that endangers the economy.

The U.S. “supra-partisan” Congressional committee’s negotiations on fiscal reconstruction have failed, due to the clash between the administrating Democrats pushing against cuts in social security and the Republicans refusing a tax increase for the wealthy.

This past summer, the two parties agreed to reduce deficits in exchange for raising the debt ceiling. It is a shame that the committee failed, considering more than $1.2 trillion worth of budget reduction in the 10-year span was at stake.

This, however, does not mean that the U.S. will default on its debt. The enactment of the “trigger mechanism,” which forces a budget reduction of $1.2 trillion starting from the year 2013, would guarantee the deficit reduction on a consistent scale.

However, since the defense and social security budget would be automatically cut, the enactment may constrain security and economic operations. While President Obama plans to refuse a revision of the trigger mechanism, the pressure to downgrade the U.S. government bonds – for the second time since this summer – may increase if Congress moves to avoid budget cuts.

What is worrisome is the stagnation of policies in general. The main agendas for the U.S. economy are recovery and financial reconstruction. If the political clash continues toward the presidential election next fall, the crystallization of these agendas will inevitably be impeded.

Although Obama has proposed economy-boosting measures funded by tax increases against the rich, it seems impossible to realize all such measures. Even the extension of payroll tax cuts, expiring at the year-end, is still up in the air. The budgetary deficit – which has exceeded $1 trillion for 3 years in a row – is unlikely to be dealt with in a serious fashion.

The parties should overcome their differences and do their best in stabilizing the U.S. economy. They have a responsibility to keep the government from becoming dysfunctional.

The Greek credit crisis is spilling over into Italy and France. The global economy and finances, standing on the verge of collapse, should not be further pressured.