Americans' right move to cut spending

14:34, August 02, 2011      

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It always makes economic sense to reduce deficit spending when a country’s national revenue has been exhausted during dire times. The gap between expenditure and income should be carefully watched by the budgeters, so that it won’t place a country’s health in peril.

The 11-hour deal between the White House and U.S. congressional Republicans to cut some $2.5 trillion in government spending over the coming 10 years in exchange for a raise in America’s federal debt limit is “good” news for U.S., and for the global economy too, including China’s.

As the deal rules the Treasury Department is now authorized to borrow more than $2 trillion more, on top of $14.3 trillion, at least a two-year “reprieve time” has been bought that would ensure a relatively stable dollar – so far the dominant reserve currency – to do business and grow economy.

The world expects the U.S. could use the grace time to clean its house of finance, albeit making a small dent in its heavy indebtedness by trimming the astronomical budget deficit, and resets the world’s largest economy on an even keel.

US President Barrack Obama and Democrats which he leads may not like the compromise deal which they thrashed out with their oppositions at the last minute, as heavy chops in federal spending are almost certain to dampen Obama’s hope of elevated economic growth and strong job gains at a critical time when he is to seek a second term at the Oval Office. Democrats are to face an amounting predicament to get reelected, as America’s anemic recovery could be negatively impacted by the unexpected headwind of a spending cut.

However, Obama needs to set his eyes on longer-term economic fortunes of the United States, even if that means evaporation of his personal political ambition. When his country is in the throes of a difficult rebirth by tightening the belts, he has to be part of the process, though heart-wrenching at times.

It is important for a country, like a family, to live within its means. Be it a big country like the Untied States, or a small one like Greece, it has to cut short a lavish lifestyle it has got accustomed to and restore austerity, if it does not want its national debts to bulge to unsustainable grounds and implode.

This time that the U.S. has averted a national default by borrowing more from the creditors does not mean it could avoid defaults forever by incessant borrowing. Both Republicans and Democrats know it. The $16.6 trillion debts are already a towering figure, shadowing and hollowing viability of the United States.

The deal calls for a 12-member congressional committee to locate $1.5 trillion in U.S. budget savings by the end of November. At a politically super-charged time, the two parties’ fight to cut spending or raise taxes to make that number will get fiercer, if not nastier. But, it is a worthwhile fight.

Last year, Obama’s cave-in to his opponents by extending for two years the Bush-era tax breaks for all Americans, including the super-wealthy ones, was a poorly calculated move accelerating American deficit, and a betrayal of Democrats’ belief that the wealthy must hand in more in taxes. This time, he did it right by agreeing to cut more in federal spending.

As painful as it surely is, deficit reduction means less on Americans’ plates. But it will be very selfish and disaster-provoking if U.S. does not act now, and let its children inherit a national debt of $20 trillion or even more. It is not too late, now, for U.S. to arrest its seemingly inevitable fall, if Americans confer on spending less and saving more.

By Li Hong, People's Daily Online
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