Obama needs care PDF Print E-mail
Wednesday, 02 October 2013 01:09
AddThis Social Bookmark Button

Obamacare could take global economy into ICU

In retrospect, the US Fed was probably at its prescient best when, last fortnight, it decided not to begin its taper even though most indicators, be they the revival in GDP or in jobs, signalled it was time to start winding down the bond purchases. Though investment growth had revived strongly, from -0.36% in Q4 FY12 to 1.38% in Q2 FY13, the Fed had its eyes on the debt ceiling talks and decided not to withdraw the stimulus in case there was a stalemate—not only would this result in government expenditure falling, even private consumption would get affected as a result, endangering the still nascent recovery. And rightly so, given that Moody’s Analytics has said a 3-4 week shutdown could shave off 1.4 percentage points from US Q4 GDP growth. Global stock markets have by and large taken the shutdown of the US governmentin their stride—it has happened 17 times in the past and though the last time was 17 years ago, the Democrats and the Republicans have managed to pull the US back from the brink ever since their standoff over Obamacare, the President’s package for, according to him, reforming Medicare and Medicaid. Both together rose from 1.8% of GDP in 1985 to 4.6% in 2012— together with social security, the spend on these programmes will rise from around 7% of GDP right now to around 14% by 2038 according to the baseline projections by the impartial Congressional Budget Office (CBO).

It was in this context that President Obama brought in Obamacare, a programme to subsidise the sale of medical insurance to those who got no cover, and he planned to fund this through a combination of higher taxes and cuts in Medicare and Medicaid. While the cuts are proving more difficult than imagined—think of the Indian government cutting kerosene subsidies to fund the Food Security Bill, won’t happen—the CBO has dramatically hiked its estimates of the cost of Obamacare, from a $944 billion over 10 years estimate in 2010 to a $1,856 billion estimate in 2012. While the tax hike estimates have also risen, as have the projected cuts in Medicare and Medicaid, the short point is the Democrats and the Republicans need to negotiate on what cuts are acceptable and which are not. Right now, the President refuses to negotiate, possibly as he feels a government shutdown will hurt the Republicans more or because he feels negotiation will make him seem weak. Right now, with the Republicans willing to let the government shut down, it appears Obama will need to do some walking too. While October 1 is the deadline for the new budget, the more important one, to raise the debt ceiling is October 17. If this doesn’t get fixed, this means US debt is no longer as secure as previously thought, the consequences of which will be horrendous. Even at the height of the standoff between the Opposition and the government in India, it has to be said, no budgets have been held up—nor has something as routine as a debt ceiling being subject to such political blackmail in any other country.


You are here  : Home Miscellaneous Obama needs care
intalk.eu - This website is for sale! - intalk Resources and Information.