By David Weidner, MarketWatch
SAN FRANCISCO (MarketWatch) – The fiscal cliff is a trumped-up phony.
It’s a political issue, not a pressing economic one. There’s a couple of tricks to solving it, but it’s not impossible. Wall Street could do it. It’s fixed tougher, albeit smaller, problems.
The fiscal cliff, as designed by lawmakers, would instigate draconian automatic spending cuts on Jan. 1. It would be something like trying to fix a car with poor gas mileage by depriving it of gasoline.
To understand how our national debt problem could be fixed, it might be helpful to step back and see what’s in our favor and what’s not.
The positives
First let’s look at the strengths. The good news is that we have time. This is probably our greatest asset. Despite our worsening debt picture, U.S. obligations remain the safest in the world. There is no reason to think the U.S. cannot manage its debts. Wall Street would be the first to vouch for that fact. The 10-year Treasury 10_YEAR -0.87% yields less than 2%; inflation is running at about the same rate.
That’s not some biased opinion of a liberal economist like Paul Krugman or Joseph Stiglitz. It’s the verdict of the free market. It’s said that investors are the ultimate ratings agency. If that’s true, in the words of Warren Buffett, the U.S. is a “quadruple-A” credit.
Second, contrary to opinion, the $16 trillion national debt mostly is in the hands of friends. Two-thirds, 66%, is owned by U.S. investors, including the government itself. The rest is split up among foreign countries. China owns 8.1%, Japan 7%, according to the Treasury Department.
That last part might sound alarming, but this is how global finance works. Nations lend to each other. We are competitors, but we are partners too. Because China owns our debt, it has an interest in our economic well-being. It needs our markets. China’s wealth is tied to the value of our dollar.
Finally, there’s our potential. A Wall Street adviser would see if there is anything worth investing in. And here, too, the outlook is good. All sides agree that given the right conditions, the economy will start humming again. Stronger gross domestic product will translate into a bigger tax base. It will be the quickest and easiest way to pare annual deficits and trim the debt.
Posts
