The Obama and Republican fiscal proposals and the political circus over debt extension in recent days have highlighted once again the inability of the U.S. political system to function in the face of a near and present danger. Standard & Poor’s, the credit rating agency, has now picked up on this, warning that fiscal inaction will trigger a downgrade on U.S. Treasury debt. This is good news in the sense that it marks the beginning of serious external pressures on politicians to make the necessary compromises to put the U.S. on a sustainable financial footing. However, the sheer magnitude of the required adjustments make it likely that any compromise before the 2012 election will be politically motivated and will deal only with short-term optics and palliatives.
U.S. Sovereign Debt Crisis: Not If, But When
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