U.S. averts disaster

An oddity of the U.S. Congress agreeing on a formula to increase the debt ceiling last week is it caused the stock market to tumble.

The relief that finally Democrats, (most) Republicans and President Barack Obama could agree on terms apparently didn’t impress the stock market which, when you think of it, is you and me and ordinary folk and pension funds, etc., who invest in future prosperity.

Another oddity was when the supposed Aug. 2 deadline for the U.S. defaulting on the debt approached, stock markets around the world were not panicking.

They sagged after the deal was made.

That tells you a lot, even (especially) if the whole business seems murky and incomprehensible, unless you’re one of those people who know the ins and outs of such financing.

The thing is, before the deal and compromises were made, the business and investing world knew there would be an agreement. Common sense dictated the Americans could not afford the indignity of defaulting on loans, and did not want their credit rating to drop (as it still might).

The agreement is to cut $2.4 trillion in government spending over the next decade, while adding another $400 billion in borrowing power to the present $14.3 trillion debt. It’s a gesture, but not much else.

A trillion dollars is something most of us have difficulty visualizing.

What ordinary taxpayers might legitimately wonder is why, if $2.4 trillion is to be cut in spending, is there any need to raise the debt ceiling? More borrowing means more spending — by government.

Some experts anticipate the present $14.3-trillion debt to increase through the coming decade by $3.5 trillion — which suggests the $2.4 trillion in cuts is little more than Band-Aid treatment.

The only thing that can, or will, curb the growing national debt is productivity. And with 9.2% unemployment in the U.S., increasing productivity is an illusion.

The answer is not raising taxes, especially if you want the economy to flourish. Yet for many politicians, raising taxes is the limit of their imagination — especially on those they regard as “the rich.”

What is often overlooked is that it is usually rich people who have the wherewithal to create jobs, and therefore become richer. In the process, American workers have also become richer.

So unless the U.S. economy revives, harsh times lie ahead, despite (or because of) raising the debt ceiling.

The fact Greece has more or less bankrupt itself, and Spain, Portugal and Ireland are approaching similar straits, will affect us all — even the incredible Canadian banking system which, right now, is the envy of the world and has almost literally saved Canada.

The great strength of United States is the energy, innovation and confidence of ordinary Americans. Right now, U.S. confidence is at a low ebb, and unfortunately the president seems incapable of inspiring the country.

Cynicism is endemic, and Obama is in over his head. Fewer and fewer people trust him. Teleprompter speeches wear a bit thin after a while, when declarations of intent are not matched by deeds.

Obama does not seem to understand that universal, cost-free health care and the largest, most advanced military in the world are not affordable. It’s one or the other — not both.

Here’s where compromises are needed — but are not forthcoming.

By Peter Worthington ,QMI Agency