The effect of the political stalemate in the United States could have an adverse effect on the rest of the global economy in stark and alarming terms.With the Democrats controlling the Senate and Republicans the House of Representatives, President Barack Obama will need to show his full range of negotiating skills to break the Washington deadlock. And the sooner the better for us all.
With much of the world's economy linked to that of the US, and with so much dependent on the state of the dollar, it is essential that a compromise be reached before the deadline of August 2 on raising Washington's federal debt limit. Failing to agree on a new, higher debt ceiling would result in an untimely rise in interest rates, with ripple effects on the global economy. As it is, the US economy is finding it difficult to add new jobs — it needs 125,000 new jobs each month just to keep pace with population growth. Its unemployment rate is 9.1 per cent, and its employers are bruised by three of the most difficult years since the Great Depression. The International Monetary Fund has asked for the debt ceiling to be raised.
Republican lawmakers, however, are in little mood to agree to higher federal debt levels at a time when the Obama administration is planning to spend billions on healthcare programmes for the millions of ordinary Americans who are without adequate insurance. Instead, Republicans would like to see smaller government — resulting in what they view as needless and pointless federal programmes being cut.
Democrats, however, say that tax increases are also needed as part of any financial package.
With the world economy in a fragile state, now is not the time for petty partisan politics to derail a painfully slow recovery. Both Republicans and Democrats need to deal with their debt levels now.