After Britain's disappointing GDP figures, America announced on Friday that its growth is slowing. As debts soar, can the US haul the world's most important economy around?
Almost four years on from the financial crisis, America is now facing a debt battle and once again the world is holding its breath. For if America messes up, much of the world will surely follow
It is just hard to make any sort of plans for what we're going to do," complains Pat Conroy, the founder and president of MicroMain, a small software company based in Austin, Texas. "It is very hard to know what sort of investments we're going to make."
It is common to hear US politicians invoke America's exceptionalism and the view that it is a nation apart. The dollar's status as the world's reserve currency and the large foreign appetite for US government debt are the two pieces of economic evidence often put forward to support the claim.
Right now, Conroy, who employs 35 people to design software for property managers, is feeling sceptical.
Like many other Americans, the entrepreneur is frustrated that the country is exhibiting a failing that has become familiar across much of the West since the financial crisis.
More than three years after President Barack Obama was swept into the White House, he and Congress have not delivered a plan that reduces the government's more than $15 trillion (£9.7 trillion) of debt, or one that stops it rising.
Instead, there have been a series of temporary deals culminating in last summer's debt ceiling debacle in which the world was forced to hold its breath to see if the US would default on its borrowings for the first time.
Default was narrowly avoided, but the US was stripped of its coveted AAA status just a few days later by rating agency Standard & Poor's.
Almost four years on from the financial crisis, America is now facing a debt battle and once again the world is holding its breath. For if America messes up, much of the world will surely follow.
The battle is familiar to many countries in the West. The imminent retirement of the baby-boomer generation means that government spending on pension benefits and healthcare will reach unsustainable levels unless those benefits are scaled back, taxes increased or there is a combination of both.
The Congressional Budget Office (CBO) – America's equivalent of the Office for Budget Responsibility – has warned that the ratio of America's debt to the size of its economy risks ballooning to 199pc by 2037 from the already historically high level of 70pc if nothing is done.
For those like Alice Rivlin who have spent their careers trying to keep America's budget balanced, the failure to confront the long-term challenge is deeply troubling.
"The long-term picture is just getting worse," says Rivlin, who ran the budget office in former president Bill Clinton's administration. "There is no really serious national conversation about the debt."
This inability to tackle the long-term horizon has left America facing a much more urgent debt fight that risks plunging the US back into recession and casting a long shadow over the rest of the world economy. As things stand, the world's largest economy will fall off what Federal Reserve chairman, Ben Bernanke, has called a "fiscal cliff" at the end of the year.
In practical terms, the cliff has two main ingredients. Firstly, tax rises that come from the expiration on December 31 of cuts introduced by George W Bush and later extended by Obama. Secondly, the start of $1.2 trillion of spending cuts that will be split between defence and other government spending.
To give a sense of the steepness of the cliff, economists at Bank of America estimate that if the tax rises and spending cuts are all allowed to happen then it will produce a fiscal tightening equivalent to 4pc of US gross domestic product. That is bigger than anything David Cameron and George Osborne have tried since taking office.
And it is the uncertainty over whether the US will fall off the cliff that is worrying Pat Conroy and his software firm in Texas. The greater hesitancy among the businesses he sells to has left Conroy unsure whether he will convert the handful of contractors the company has added this year into permanent employees.
Nor is the fog just restricting the view of America's army of small businesses. With half of the spending cuts due to come from the military budget, the country's biggest defence and aerospace companies are rattled. No one appears to know which specific programmes will be targeted when the axe falls in January. "We're entering a time frame when the uncertainty is as onerous as the cuts themselves," Jim McNerney, the chairman and chief executive of Boeing, said. "I have no choice but to adjust my costs."
If it were just Conroy's 35-person operation or even the vast Boeing company affected that would be manageable. But an increasing number of economists expect a measure of paralysis to ripple across US businesses over the rest of the year.
Analysts at Bank of America believe it will bring the US economy to a virtual halt in the fourth quarter, when it is forecasting growth of just 0.25pc. "Businesses don't have any clarity and we think we'll see them respond," said Michelle Meyer, an economist at Bank of America. "It will start showing up in the data in coming months."
Worryingly, it is not just America's businesses that are stuck with a restricted view of how much they will be taxed next year and where exactly spending cuts will fall. It is consumers whose spending still accounts for the lion's share of the economy. Should all the tax cuts, including an emergency tax on salaries, be allowed to lapse, the Tax Policy Center estimates that 83pc of households will face an annual increase in their tax bills of $3,701.
The fog is set to remain at least until the election because the latest opinion polls suggest that November's fight for the presidency between Obama and Mitt Romney, his Republican challenger, will be close. The battle between Democrats and Republicans for control of Congress is also forecast to be very tight. None of which is encouraging for a global economy in which much of Europe and the UK are mired in recession and Asia is facing its own headwinds.
If there is good news, it is that few expect America's political elite to allow the country to fall off the "cliff".
Whatever voters decide in November, most expect some of the tax cuts to be extended and a portion of the spending reductions to be delayed.
Economists at Barclays, for example, are forecasting a compromise that will deliver fiscal tightening of about 1.3pc of GDP. That will be a drag on growth next year, but is less likely to force the US into the double-dip camp with Britain and large parts of Europe. No one wants to see the world's largest economy contract again.
That includes the financial markets. Whatever you think of some Americans' view that theirs is a country apart, bond investors still treat it as one.
Although the US budget deficit has fallen from the 9.9pc of gross domestic product it reached during the depths of the recession in 2009, it is still predicted to hit 7.6pc this year. That is higher than any year between the end of the Second World War and 2008, when Lehman Brothers collapsed. By contrast, the International Monetary Fund forecasts that Britain's budget gap will narrow to 7.1pc next year.
Having the global reserve currency and the world's largest and most liquid government bond market are real advantages. They were listed by Cameron at a press conference with Obama in the White House Rose Garden in March. It is the view of many economists, investors and chief executives in the US that the lack of pressure from markets has allowed political disagreements over the deficit to harden into deadlocks that no other country would be allowed.
America's debt "is not as high up on the [bond market's] radar as it will be some day", said Steve Rodosky, head of US government debt trading at Pimco, the world's largest bond fund manager. "There is this implicit belief that they will figure it out. The way they usually do these things is go right to the edge of the abyss."
Europe's debt crisis has added to the advantages the US already has. The prospect of the break-up of the euro has left the single currency looking anything but a serious challenger to the greenback's status as the world's favourite currency.
Fears over the future of the eurozone have seen investors scurrying for the relative safety of US government debt, driving the yield on the benchmark 10-year bond to a record low of 1.4pc. Thanks to that, the CBO expects the interest payments that America has to make to service its debt will actually fall this year to $224bn from $227bn in 2011.
As the world's financial markets continue to give America more breathing space on its debt than any other country, analysts say the real challenge in 2013 is whether it can break the pattern that has dominated in Europe's debt struggle.
That would mean that instead of waiting for bond investors to impose a measure of austerity on a country, the US can get ahead of the market by delivering a plan that both reins in the projected long-term debt and tries to preserve the current recovery. Despite the lack of recent progress, Rivlin has not yet given up hope.
"I think it is quite doable," Rivlin explains. She quickly adds that "the things that have to be done are inherently complicated. Even if you decide on a long-term plan, it is not something you can do quickly."
Right now, many would be more inclined to agree with the second part of her summary than the first. Reaching such a deal will require both cuts to state-funded healthcare and retirement benefits that generations of post-war Americans have come to expect and, at the same time, an increase in taxes from the levels of the past decade.
There is almost universal agreement that the problem lies in these two areas. With the number of people over the age of 65 set to grow by a third over the next decade, the CBO predicts healthcare spending will rise by an annual rate of 8pc. Meanwhile, the US Treasury is still taking in less in tax revenues than the 18pc of GDP averaged over the 40 years before the crisis.
Whether the answer to America's potential debt time bomb also lies in these two areas will depend on a degree of political compromise over the role of tax and spending that has proved elusive.
No one is suggesting it will be easy, but Americans do not need to look outside their own borders for evidence of how it can end badly. San Bernardino last week became the third Californian city in as many months to file for bankruptcy, weighed down by spending promises it could no longer afford to keep.
While no one is suggesting that the US is heading for bankruptcy, economists such as Meyer of Bank of America are clear there would be benefits if America could reach a long-term plan.
"It should keep interest rates low," she says. "It is not a problem that the US government has right now, but when interest rates go up debt can quickly become unsustainable."
If America can manage a "big agreement" next year that puts controls on long-term debt without hurting growth, it could provide a welcome surprise to the rest of the world.
First, though, the US needs to steer clear of the fiscal cliff.
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