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06Aug11


U.S. debt problem remains unsettled


Far from an end to the U.S. debt problem, the last-minute congressional approval of an increase in the debt limit is merely a technical time-out.

President Barack Obama on Wednesday signed legislation to increase the U.S. debt ceiling, after Congress voted in favor of a compromised bipartisan deal.

As for the details, the debt deal calls for spending cuts of roughly 900 billion U.S. dollars over 10 years, followed by a second phase of cuts to bring the 10-year total to about 2.4 trillion U.S. dollars. If achieved in full, this is only a little more than half of what is required to stabilize the ratio of public debt to gross domestic product at a safe level.

The U.S. has long been facing the same problem: living beyond its means. At present, the country has debts as high as 55 trillion U.S. dollars, including more than 14 trillion U.S. dollars of treasury bonds.

National debts equate to 176,000 U.S. dollars per person, or 670,000 U.S. dollars per household.

It seems the country will struggle to pay off the debts as its annual tax revenues just average 3 trillion U.S. dollars while the average annual incomes of middle-class families reach around 50,000 U.S. dollars.

Without any plans to increase taxes in the debt deal, spending reductions will be the only means to cut the country's deficits.

There will be a clash of opinions in Congress about this. The Democrats will firmly oppose reducing welfare expenses, while the Republicans will refuse to cut national defense budgets, as they always do.

What's worse, policies such as unemployment benefits and income tax exemption are still needed due to the country's fragile economic recovery, which means the government has very limited tools to reduce deficits.

"The measures that the U.S. government will adopt to repay its accumulated debt and cut deficits remain unknown, which will be a destabilizing factor for the sustainable and balanced development of the global economy," said Liu Shangxi, deputy director of the Research Institute for Fiscal Science under the Ministry of Finance.

The U.S. has raised its debt ceiling four times since the start of the financial crisis to stimulate its economy. The Federal Reserve pumped at least 2 trillion U.S. dollars into the financial system to increase liquidity, despite little evidence that the measures were having a positive effect.

Official figures show that the U.S. economy slowed to an annual growth rate of 1.3 percent during the second quarter of the year, far short of market expectations of 1.7 percent.

The nation's manufacturing purchasing managers' index for July fell to 50.9 percent with the new orders index plunging to a six-month low.

Personal income rose a seasonally adjusted 0.1 percent in June, the smallest increase since last November. Spending by consumers dropped by 0.2 percent, marking the first decline in nearly two years.

The unencouraging economic data stoked concerns about the strength of the country's economic recovery.

Goldman Sachs Group said on Thursday that it saw a one-in-three chance of another recession in the U.S. within the next nine months, while Martin Feldstein, a Harvard University professor, has noted there is a 50-percent chance that the U.S. economy may slip into a double-dip recession.

The credit rating agency Standard & Poor's on Friday cut the U.S. credit rating to AA+ from AAA.

Though the country moved back from the brink of a debt default with a last-minute Senate vote, this does not mean the measure will be able to rejuvenate the economy, said Wang Jun, an economist with the China Center for International Economic Exchange.

By raising the debt ceiling, the U.S. government is trying to buy time for economic restructuring, but its real economic problems remain unattended to, Wang noted.

[Source: Xinhua, Beijing, 06Aug11]

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