Miscellaneous of Senator Crapo
Atlanta Journal Constitution: 'Gang of Six' deficit plan is right course
Wednesday, July 20, 2011
7:35 p.m. Wednesday, July 20, 2011
As a global asset manager, Invesco is closely monitoring both the U.S. and international implications of raising the U.S. debt ceiling by Aug. 2, and addressing the fiscal deficit in the short term. How Congress and the White House resolve this impasse will have significant long-term consequences for the economy, employment, the markets and investors around the globe. The world is watching. Our leaders need to lead and come to a credible compromise before the deadline.
Republican Sen. Saxby Chambliss of Georgia and five senators have put forth a courageous bipartisan plan that offers specific proposals for reducing the federal deficit by as much as $4 trillion over the next decade. By reforming the key drivers of future debt, including Social Security and health care, and reducing tax rates while broadening the tax base, Chambliss and his group’s proposals offer a refreshing, responsible way forward.
No one can accurately predict the specific damage the markets could suffer if the United States were to default on its debt payments. We believe the effects would be adverse and immediate. U.S. treasuries are viewed as risk-free securities, and their rates are used to price assets across the global markets. The ripple effect of a default would be felt across fixed income, currency, equity and commodities markets. A default would likely increase interest rates on U.S. treasuries, which would in turn further spike the deficit. In short, we believe the potential effects are too great to risk, and that delaying resolution could have enormous consequences.
Yes, we have a spending problem, but we should address it in a thoughtful, comprehensive manner. A default will have a hugely negative impact on the fragile state of our current economic recovery, further jeopardizing economic growth and employment.
The Congressional Budget Office projects that if current laws remain unchanged, U.S. deficits will total $7 trillion over the next 10 years. We need a plan that addresses our budget deficits while encouraging investment, growth and employment.
Even if the debt ceiling were raised unconditionally, doing nothing on fiscal policy is not a viable option. Studies have shown that the economies with public debt above 90 percent of gross domestic product grow on average 1.3 percent less than countries with lower debts. The CBO projects that by 2021, the United States could reach a 97 percent debt-to-GDP ratio if certain policies are extended. This could have significant impact on our long-term growth.
The underlying issues are complex and contentious. For example, health care spending — a sensitive issue among voters — plays a key role in the long-term deficit problem. In 2009, the United States spent 17.4 percent of its GDP on health care, more than any other country in the Organization for Economic Cooperation and Development. The Netherlands was a distant second at 12 percent.
In spite of these challenges, the United States is still the world’s largest economy. Our central bank is independent and credible among foreign nations, the U.S. dollar is the world’s reserve currency and the primary currency for global trade, and much of our deficit situation is tied to long-term liabilities.
A thoughtful economic plan, such as the one introduced by Chambliss, will create the confidence for individuals and corporations to consume and invest, which will drive economic growth, employment and equity market returns. It’s not too late for Congress and President Barack Obama to build on the momentum the introduction of this plan has created to avoid a looming fiscal crisis and achieve a far-reaching solution that leads to long-term economic sustainability.
Marty Flanagan is president and CEO of Invesco in Atlanta.
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