Obama Appears to Have "Negotiated" the Most Imprudent Budget Deal Ever
Department of "Huh?!': Debt-Ceiling Deal

Time to Downgrade the U.S. Political System

Gavyn Davies:

US economic policy is not yet triple A: A budget deal… better than the alternative of no deal… will bear little resemblance to the comprehensive package which Ben Bernanke and many economists have called for. That comprehensive package would introduce credible medium term policy changes to ensure fiscal sustainability in coming decades, while avoiding an excessive tightening in budgetary policy in the short term. So what does it seem we will get? Precisely the opposite…. [A] tightening in the budgetary stance of some 4 to 5 percentage points of GDP over the next two years. This tightening, however, is only about half of what would be required to ensure that the US attains a position of long term debt sustainability…. [T]he economy seems likely to be hit by a sizeable, early fiscal tightening, while failing to achieve longer term debt sustainability. This seems to be precisely the wrong way round….

In Britain, a credible medium term path for fiscal consolidation has been accompanied by a large fall in the exchange rate, and a highly expansionary monetary stance. Admittedly, that mix has, so far, resulted in nothing better than a very sluggish economy…. Both of these two escape routes are now strewn with difficulties in the US case….

[T]he price of removing its self-created problem with the debt ceiling seems likely to be that fiscal policy will be tightened at a time when the economy is already weakening.