Playing with fire leads to the US blaze

The US economy has experienced an unexpected setback over the last quarter. Analysts tend to dwarf this contraction closely related to the fiscal cliff wrangle and its ensuing uncertainties. It shows to what extent lawmakers in Capitol Hill are ready to inflict damage on the economy for the sake of putting a President many Republicans profoundly despise.

The mere thought that this ideological discussion will continue in future sends shivers down the spine. For all the merits of overcoming an open showdown raising steeply taxes and blocking most of Federal expenditure, danger of a protracted discussion over expenditure cuts looms ahead. When the debt limit is foreseen to be reached in a couple of months, those claiming a clampdown on spending will be given the opportunity to make their point.

In a year where most developed economies are engaged in austerity packages, contagion from a weakened US economy poses a real problem to trading partners. A most serious concern when they are struggling to escape from utter recession.

The ongoing row over the streamlining of the Federal budget might send shock-waves to other economies. The looming danger the US economy might take the brunt of the opposition intransigence, looks serious enough. Unless a balanced bipartisan understanding is reached, we are bound to be exposed to extensive shock.

That’s why overconfidence over future prospect should be played down. We face a real growth problem ahead, unless a fair solution is agreed on expenditure cuts. A matter that contrary to the tax hike, drives most voters in supporting a tough stance. Worldwide growth is at stake.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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