It doesn’t matter whether the debt was created by Republicans or Democrats, he added, “the severity of this problem will require members of both parties to come together to find a solution.”
Jerry Jasinowski, former president of the National Association of Manufacturers, credits Mr. Obama for trying to get bipartisan action on the economy and deficits.
Republicans should “see if common ground can be found,” he said. “Historically, the Democrats resist spending cuts, especially for entitlement programs, and the Republicans have hissy fits at the mere mention of tax increases. But leadership demands tough decisions. We must have some combination of spending cuts and tax increases. There is no other way.”
Mr. Jasinowski said that while the current economic challenges are the most “daunting” since the Great Depression, a crisis can be averted.
He noted that bipartisan cooperation between the Clinton administration and the Republican-led Congress in the 1990s produced three years of budget surpluses and a dynamically growing economy.
While no one knows for sure what would happen if U.S. Treasury bonds - once considered the safest haven for investment in the world - were to lose their AAA status from Moody’s or other credit-rating agencies, cash-strapped countries in Europe who have lost their AAA ratings are providing a clue about the consequences.
Ireland, which lost its AAA rating last summer as it financed unprecedented large bank bailouts and recession-related spending, was forced to make drastic cuts in spending and raise taxes to ensure it can continue to borrow at affordable rates. Other European countries, including Greece, Italy and Portugal, have faced similar or worse pressures, and their struggles have cast a cloud over the economic outlook for the entire European Union.
Japan’s sovereign debt was downgraded from AAA status last year without major consequences. But Japan’s savings rate is high enough to finance its own deficits, something not true of the U.S.
On the other hand, a U.S. downgrade could have greater consequences than elsewhere because of the dollar’s status as the world’s reserve currency and Treasury’s status as the world’s leading safe haven for investors.
By Douglas Holtz-Eakin
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