When Strauss-Kahn Disapproves of Obama
Published in Les Echos
(France) on 14 April 2011
by Jean-Marc Vittori (link to original)
Dominique Strauss-Kahn's message is simple: The United States is heading for disaster. It was not said so bluntly, but instead with a lot of cant because it was said in the realm of political and financial diplomacy. The International Monetary Fund (IMF), which is directed by Dominique Strauss-Kahn, said in two studies published on April 13 that the current situation cannot last forever: The United States is the only developed country where the budget deficit is increasing this year. And in 2011, the loans that were used to finance both the public deficit and the public debts will expire this year and will reach 29 percent of the GDP. This is twice as high as the problematic European countries.
The problem is well known: The Americans made a choice opposite ours. Two years after the crisis, Europeans decided to lower budget deficits and to limit the flows of government expenditures in order to keep them from spinning out of control. In the United States, it is the opposite. Public money keeps flooding the country like the Nile used to flood its Egyptian banks. As a result, the budget deficit will exceed 10 percent of the goods and services produced by the U.S. for the third year in a row.
That deficit is twice as big as the Eurozone's. With the massive injections of public money, the U.S.'s economy is increasing faster than Europe's. But because its fuel is public debt, there is a risk that the same thing will happen as with its previous fuel, the private debt. The engine will break at some point.
The Americans are aware of this issue. Of course, they have a great advantage: they print the dollar, which is the global currency. And their U.S. Treasury securities are currently considered to be the safest investment in the world.
But this advantage is now in danger. Investors are worried. And Washington is perfectly aware of it. Thus, the debate is in full swing in the U.S. capital. Especially since Congress has to vote for the public debt ceiling increase by May 15, or else the federal government will be in default.
Yesterday, President Barack Obama suggested that reducing the deficit by $4 trillion over the next 12 years be set as a goal. It is a huge number — half the estimated deficit. But it may be a goal that’s difficult to reach. In Congress, Democrats have refused any cut in government spending. And Republicans do not want to hear about tax increase. They want to lower the highest income tax rate from 35 percent to 25 percent whereas it exceeds 40 percent in most European countries.
We are concerned by these American follies. First, the U.S. issues the global currency and it prints too much of it in order to finance its mammoth deficit. This may one day trigger a huge wave of inflation that will hit us.
Second, the U.S. Treasury securities make up the keystone of the global financial system. If one day that keystone is rotten, the whole global financial system might then collapse without any precedent.
Compared to this scenario, the Lehman Brothers bankruptcy is just a cute little story.
The problem is well known: The Americans made a choice opposite ours. Two years after the crisis, Europeans decided to lower budget deficits and to limit the flows of government expenditures in order to keep them from spinning out of control. In the United States, it is the opposite. Public money keeps flooding the country like the Nile used to flood its Egyptian banks. As a result, the budget deficit will exceed 10 percent of the goods and services produced by the U.S. for the third year in a row.
That deficit is twice as big as the Eurozone's. With the massive injections of public money, the U.S.'s economy is increasing faster than Europe's. But because its fuel is public debt, there is a risk that the same thing will happen as with its previous fuel, the private debt. The engine will break at some point.
The Americans are aware of this issue. Of course, they have a great advantage: they print the dollar, which is the global currency. And their U.S. Treasury securities are currently considered to be the safest investment in the world.
But this advantage is now in danger. Investors are worried. And Washington is perfectly aware of it. Thus, the debate is in full swing in the U.S. capital. Especially since Congress has to vote for the public debt ceiling increase by May 15, or else the federal government will be in default.
Yesterday, President Barack Obama suggested that reducing the deficit by $4 trillion over the next 12 years be set as a goal. It is a huge number — half the estimated deficit. But it may be a goal that’s difficult to reach. In Congress, Democrats have refused any cut in government spending. And Republicans do not want to hear about tax increase. They want to lower the highest income tax rate from 35 percent to 25 percent whereas it exceeds 40 percent in most European countries.
We are concerned by these American follies. First, the U.S. issues the global currency and it prints too much of it in order to finance its mammoth deficit. This may one day trigger a huge wave of inflation that will hit us.
Second, the U.S. Treasury securities make up the keystone of the global financial system. If one day that keystone is rotten, the whole global financial system might then collapse without any precedent.
Compared to this scenario, the Lehman Brothers bankruptcy is just a cute little story.