A Debt Deal in US, but Stocks Still Slide
This week President Obama signed a billraising the nation's borrowing limit. That debt deal, however, failed to keepstock markets from dropping. Prices fell sharply on growing economic concernsabout the United States and the world.
The legislation followed months ofarguing that only added to those concerns. Congress sent the bill to thepresident to sign into law on Tuesday. That was the last day the governmentsaid it had enough money to make all of its payments.
The Budget Control Act of 2011 lets thegovernment seek financing to pay its bills until twenty-thirteen. Congressagreed to lift the debt ceiling by over two trillion dollars, but also to makespending cuts.
President Obama said it was a startingpoint.
BARACK OBAMA: "This compromiseguarantees more than two trillion dollars in deficit reduction. It's animportant first step to ensuring that as a nation, we live within our means.Yet it also allows us to keep making key investments in things like educationand research that lead to new jobs. And assures that we're not cutting too abruptlywhile the economy is still fragile."
Richard Gordon worked with theInternational Monetary Fund for nearly ten years. He says there is a risk incutting the federal budget too much when unemployment is high.
RICHARD GORDON: "If the federalgovernment does not put money into the economy, the economy will stall. Andthat will result in another recession, and that cannot help anybody."
The national debt is more than fourteentrillion dollars. At the end of last year, private investors in the UnitedStates held the largest share -- thirty-six percent of that government debt.China was the single largest foreign holder of Treasury securities, followed byJapan and Britain.
On Wednesday, China's Dagong creditrating agency downgraded American debt. It said the budget deal did nothing toimprove the United States' ability to pay its debts. Still, the government hashad no trouble finding investors, and its borrowing costs have even fallen.
The Budget Control Act calls for almostone trillion dollars in spending cuts over ten years. A committee of sixDemocrats and six Republicans will have to identify another trillion and a halfdollars in deficit reductions.
What happens if the committee cannotagree? Then an enforcement measure known as a trigger would go into effect. Itwould cut money from domestic and defense programs, but not in popular socialprograms for retirees and the poor.
The budget deal contained no taxincreases, but that issue has not gone away. Richard Gordon -- now a lawprofessor at Case Western University in Cleveland, Ohio -- says the deal leavesa big question.
RICHARD GORDON: "What is going tobe the economic policy of the federal government in the next two years?"