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News Analysis: U.S. fiscal condition sours 10 years after 9/11

(Xinhua)

13:55, September 10, 2011

WASHINGTON, Sept. 9 (Xinhua) -- With the Sept. 11, 2001 terrorist attacks fading into some people's distant memories, public anxiety over Washington's fiscal pressure has been mounting over the past decade.

Last month's decision by Standard & Poor's (S&P) to strip the United States of its gold-plated credit rating sounded a siren on the U.S. fiscal sustainability and the effectiveness of Washington's political system to address severe fiscal challenges.

The downgrade followed a nasty battle through the summer which saw Republican and Democratic lawmakers lock horns before stitching together a 2-trillion-U.S.-dollar-plus deficit reduction package just in time to avoid an earthshaking debt default.

Yet the deal fell far short of the level of 4 trillion dollars cited by S&P to avoid a downgrade, and the political dysfunction in Washington served another key reason of the downward adjustment.

In retrospect, the wars in Afghanistan and Iraq, former President George W. Bush's tax cuts, President Barack Obama's economic stimulus measures and ballooning entitlement expenses in an aging society all contributed to the spiking U.S. national debt.

When Bush took office in 2001, the U.S. government projected a surplus of roughly 6 trillion dollars over the following decade.

However, rather than raising taxes to cover the costs of the two wars and entitlement spending, the Bush administration pushed for massive tax cuts for the wealthiest.

The U.S. government used the Cold War to reach the moon, spawn new industries and foster economic growth, but Bush did just the opposite during the post-9/11 years, New York Times columnist Thomas Friedman said recently.

"By rather than use 9/11 to summon us to nation-building at home, Bush used it as an excuse to party," Friedman noted, adding that the Bush administration used 9/11 as an excuse to lower taxes, start two wars and create a costly new entitlement in Medicare prescription drugs.

The U.S. national debt increased nearly 5 trillion dollars during Bush's eight-year presidency, and it has increased another 4 trillion dollars on Obama's watch to an alarming 14.7 trillion dollars.

Many economists cautioned that the latest deficit-cutting deal will not address the country's longer-term fiscal problems, and the rating agencies are justified in reconsidering the United States' triple-A credit rating.

For example, Sebastian Mallaby, a senior fellow at the Council on Foreign Relations, noted that the compromise will save the U.S. government from defaulting on its obligations, but it does not address the fiscal challenges facing the nation in the long run.

World Bank President Robert Zoellick told Xinhua in a recent interview that S&P's move is a "warning sign" to policymakers in the United States and Europe.

Chief Economist Philip Suttle of the Institute of International Finance told Xinhua that the downgrading decision was a justified one. He explained that a well-functioning U.S. government should endeavor to curb the spiking entitlement spending, the main driver of the U.S. deficit, but such reforms are not part of the bipartisan deal.

Zoellick said that some 10 years from now, people would look back and judge whether this downgrade prompted a sensible policy response, or it was a milestone in a period of policy inactivity that worsened the world's largest economy.

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