US must act on debt crisis sooner rather than later
As debt talks between Republicans and Democrats persist, international players are concerned about Congress and their inability to make economic progress. For AU students, there will be definite repercussions of such decisions; and perhaps not now, but surely down the road.
‘Across the board’ spending cuts, or sequestration, has rippled effect through the U.S., particularly in the defense sector. For the first time in decades, an IMF head is vocalizing trepidation over the finances of the only country carrying absolute voting power within the organization.
Christine Lagarde, managing director for the International Monetary Fund, is pleading with lawmakers to come to a consensus. While she praised the effort central banks are taking to alleviate both the United States’ and European woes, Lagarde acknowledged not enough is being done.
“It is essential that we resolve this – and the earlier the better – for confidence, for markets and for the real economy,” Lagarde said of the U.S. economic recovery. She consistently used the word “momentum” to describe current events, assuming lawmakers no longer waste time.
While good-hearted, collaboration will dictate the course of events, House Republicans have been defiant in raising the borrowing limit and their Democrat counterparts are sweating bullets in negotiating against deeper budgetary cuts. As per usual, questions of government shutdowns have concerned citizens within the middle and working class.
Sadly, government shutdowns are the icing on the economic cake.
Lagarde, however powerful her role in determining operability within international financial markets, may not sink in time for those consumed with policy skirmishes. Interest rates would no doubt be affected, leaving foreign investors with a bitter taste of America’s monetary system. While Republicans are not entirely at fault, opportunities for mending relationships in and out of the chamber is fast fading. Where does this leave university graduates?
International monetary policy holds that higher interest rates (assuming the economy is operating on a somewhat stable platform) attract foreign investment. Players, usually financial speculators, partly depend on ease-of-mind when determining if a country, company, community and so forth are potentially high yielders. A higher yield seduces more investors towards U.S. markets, and resultantly increases the ratio of exports over imports.
While slight variances in export-import economies need not cause weeping, more rigid fluctuations are a by-product of inner-political dodgeball. In 2011, credit downgrades brought down the U.S. from a gorgeous ‘AAA’ to a less attractive ‘AA ’ rating. This caused a notable shift in confidence among consumers and investors. Of course, Standard & Poor’s was blindsided by retaliation from Attorney General Eric Holder and the U.S. Department of Justice during a contentious lawsuit.
Lagarde is a guiding voice at this juncture, urging us to logically confront and deal with our fiscal and monetary skeletons sooner rather than later.
Marshall Bornemann is a junior in the School of International Service.