Friday's stunning and very public quarrel between the president and the Speaker of the House of Representatives was the catalyst for a weekend of frantic negotiations on how to increase America's debt ceiling, maintain the country's sacred AAA rating, and avoid a near-term default. Meanwhile, administration officials and members of Congress took to the airwaves on Sunday trying, but largely failing, to strike the balance between statesmanship and another round of the Washington blame game.
It was hoped that all this would serve as a prelude to a political compromise announced just before the opening of Asian markets. This did not materialize. But while another self-imposed deadline has been missed, it is likely that the nation's leadership will stumble into a short-term compromise over the next few days -- one that raises the debt ceiling and avoids a debt default but, importantly, leaves the AAA rating extremely vulnerable and does little to lift the damaging clouds hanging over the US economy.
It will come down to the wire; and when the stopgap compromise is reached, many in Washington will declare victory and, in the process, claim credit for averting a national disaster. Yet the resolution will likely be temporary, and the damage will be real and long-lasting -- both of which render an already worrisome situation even more difficult going forward. Indeed, by illustrating so vividly to the whole world what is ailing America, the weekend's political theatrics should make us all worry even more about the world's largest economy.
First, consider the context. America's already-fragile economic psyche and its global standing have taken a material hit. Forget about "animal spirits" for now. Instead, worry even more about an economy that is already having tremendous difficulty sustaining an acceptable growth momentum, and that already suffers from an unemployment crisis that is increasingly protracted in nature. Analysts will now scramble to again revise down their projections for growth, and up those for unemployment.
Second, remember the content. The debt and deficit issues that are at the root of the debt ceiling drama are, unfortunately, a small part of a much larger set of structural impediments to employment, investment and wealth creation. The housing sector is still languishing, credit intermediation is uneven, infrastructure investment is lagging, job skill mismatches are increasing, and income and wealth inequalities are worsening.
Third, lament the process. Virtually all Americans worry about these problems and too many feel them acutely on a daily basis. Astonishingly, however, our elected representatives and their appointees are just bickering and, distressingly, failing miserably to communicate a vision that provides for even the smallest amount of medium-term optimism. The endless political squabbles compel all to question whether politicians are aware of Main Street's realities, let alone up to the task of making things better.
Finally, don't forget the international angle. Anyone who travels will tell you that America's friends and allies are bewildered at what is going on here (and its enemies rejoicing). This comes at a time when the country can ill-afford to lose the confidence of large foreign holders of US Treasury bonds, overseas manufacturers with factories here, those that use the dollar as the reserve currency, and the many who have outsourced to here the intermediation of their hard-earned savings and pensions.
Yes, after taking it to the edge, it is still highly probable that Washington will manage to step back from defaulting on the national debt. But no one will, or should, feel good about how this happens.
It is highly likely that the solution will be a band aid that has to be replaced in the coming months. In the meantime, America's structural injuries will deepen and, to an extent that was unthinkable, America's economic future will become even cloudier.
This country's turnaround is less of an economic engineering predicament and more of a political fix. But if Washington continues to squabble and if acrimony intensifies further, it will quickly become both.
Mohamed A. El-Erian is CEO of PIMCO, and author of "When Markets Collide"
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I hope this doesn't mean PIMCO is still long treasuries. I'm holding PIMCO in my 401k.
President is speaking now. He came into office deficit was 1 trillion and it is now 14 trillion.... excuse me - what the hell!
Unfortunately, your lack of leadership will affect the whole world...also will change the perception of the US around the world.
Wish you luck....
"President Bush presided over a $2.5 trillion increase in the public debt through 2008. Setting aside 2009 (for which Presidents Bush and Obama share responsibility for an additional $2.6 trillion in public debt), President Obama’s budget would add $4.9 trillion in public debt from the beginning of 2010 through 2016."
http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/
I know you love your current job, but any chance you'd accept the job of Secretary of Treasury?
I believe that we are illustrating to the whole world what is RIGHT with America. They never have these kinds of fractious, confrontational debates in nations ruled by authoritarian regimes, even as they slide down the tube. In many other liberal Western democracies (Britain, France, Greece, etc) rather than this kind of open, swirling, vexing public debate they resort to street riots. As a nation, America is not a product of nature. America is the deliberate product of man's intellect, the first and still only nation created under a premeditated architecture and framework. And so it is perfectly fitting that Americans will struggle over the future architecture and framework of that nation. For many nations, that is not even a question, really: Germany will be German, Japan will be Japanese, Spain will be Spanish, and so on. All of them can look back on thousands of years of shared history and heritage and customs and language to answer many of the questions that we Americans have to debate. Often publicly, and often quite energetically.
This will work out. A moderate solution, somewhere in the middle, where everyone give something will emerge. America will move forward stronger than before.
Carry on like this and you wioll get your shareof street riots too. You are not THAT young a country any more.
That's what the debate, public and contentious as it is, is all about. Name-calling is one of the few things that contributes nothing, except insight as to the name-caller's mental processes.
Only for those with a very limited imagination.
"Something has got to give alright and this manufactured bs is niot the solution to anything let alone right for or about america."
What, are you claiming to be the judge of that? Sorry, only in your own mind. This is a debate about the very architecture and structure of America.
"Did you see Wisconson fom that lone tree? How about Chicago in 68 or Seattle?"
Of course I did, and much more besides. Everything in the grand sweep of America is visible from here. You are welcome to join, but please find your own tree. This one is mine.
"When people are getting stepped on here we won't be any different than Egypt or Greece or anywhere oppressors plant their boot."
Things here most certainly will be different. In America, the only time we've worried about presenting a "united front" to the world has been when we've been attacked. For the rest of the world, presenting that "united front" and concealing internal divisions is far more important (my family is first generation immigrants, and I spent 40 years living and working outside the US, I know what I'm talking about). As Americans, we are utterly un-selfconscious about arguing in public.
This will be the final solution that should put the country back on the road to reducing the debt, if it does not ruin and run the economy into the ground, burial ground that is. Keep your eyes and ears open for the deal on Friday, but keep a barf bag nearby since you may not be able to stomach it.
With "bribery" being legal, the chances of any of these people doing anything for the good of the Country is slim to none.
Get ready for more to come. The republicans have set it up to redo this whole debt BS just in time for next years election.
I don't know who is going to help us. God left the planet and Jesus is pissed. Maybe his Mom?
There is only one thing that creates sustainable jobs, and that is demand. The Bush tax cuts, to the extent that they left more money in the hands of lower and middle income Americans, did stimulate demand, roughly a dollar of demand for every dollar of lost tax revenue. Where the Bush tax cuts has failed is in leaving large sums of money in the hands of the wealthy (who I've already stated don't 'create jobs', at best they put together profitable enterprises to benefit from that demand). Because the wealthy don't spend all that extra money creating demand (as the poor do), so the money sits essentially idle and the stimulus advantage rapidly deteriorates to pennies of stimulus for each lost dollar of tax revenue.
The problem is that the Democrats in general, and Progressives in general (with their insatiable appetite for punishing successful people in the name of 'social justice') have been utterly incompetent at explaining this to the people who currently disagree with them. The (D)'s would rather pummel their opponents and feel self-righteous, rather than patiently and courteously explaining the truth and winning a convert.
There's also a major problem with the tax brackets and rates, but that's a separate topic.
Once the Republicans have signed the Norquist Pledge, we are deluding ourselves that they will come to the table. Their campaign funding is at stake.