Is there a failure to communicate? - After initial euphoria over purported US debt default “compromise” now reality is hitting home and the forecasts. From overnight optimism, the focus has reverted in a matter of hours to diminished growth prospects and ongoing uncertainty regarding future cuts in US spending and/or stalemates. Too Much Cutting – Not Enough on Growth, Jobs and Housing: Barclays is among several global institutions downgrading projections of US growth, by approximately 1/3 for both all of 2011 and 2012. (In all fairness, some of this may be a consequence of lower growth prospects brought about by the uncertainty and other factors pre-compromise). As PIMCO’s Mohamed El-Erian expands upon in this short interview with Bloomberg News, the austerity effort may already pull down growth, but the focus of the spending cuts is the most damaging without a correspondent effort to enhance employment and housing. The end result may be an even greater deficit because of significantly reduced economic activity and tax revenues. This also reflects the vicious cycle that may already be underway in Europe, (but such to a much lesser degree than what may be put into motion by the US debt compromise). FROM Bloomberg : “The austerity drive follows similar consolidation in Europe, where countries from Greece to the U.K. have reduced outlays and increased taxes to bring liabilities under control. What officials may also need to execute are the fundamental changes needed on both sides of the Atlantic to make economies function better and thus expand more. In the U.S., the budget squabbles threaten to hold back growth, making it harder to tackle entrenched unemployment and a battered housing market, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. (and former IMF Chief Economist): ‘When you look at the debt burden, there is a numerator and a denominator,’ El-Erian, whose Newport Beach, California- based firm manages the world’s biggest bond fund. “We may end up creating so much damage to the denominator, which is growth of GDP, that what we do in the numerator, reducing the debt, may end up being insufficient.’” Failure to Communicate The “compromise” also is not a solution for the medium term or in methodology. Already by November, further agreement on “spending cuts” is called for by the compromise. This in my opinion is not likely to occur. Further, the methodology of negotiation across the political table by the tactics of Russian Roulette has now been legitimized in the eyes of many hardliners among Republican ranks. In other words, more uncertainty even if the crisis for now appears put-off. As I indicated in my previous article, President Obama may be now perceived as not having the will for the political fight. Ever since Obama blinked first by allowing the extension of “Bush tax cuts for the rich,” in late 2010, he has been perceived more as the great compromiser and less as the great communicator capable of effectively presenting the counter argument to US voters. (“US Damaged Regardless of Debt Default Stalemate Resolution” - diplomaticallyincorrect.org/films/blog_post/us-damaged-regardless-of-debt-default-stalemate-resolution-by-ambassador-mo/32743 ). It is inconceivable that a long term deficit reduction can really succeed by purely cutting government spending at the expense of those who are most vulnerable and expend the most of what they receive in income into the US economy while not raising taxes or even closing loopholes with respect to those who have greatest capacity. To cite a famous line from Paul Newman’s film, “Cool Hand Luke,” - “what we have here is a failure to communicate.” (That was not Paul Newman’s line but his prison guard’s). Related Reports at “International Financial Crisis Channel” - diplomaticallyincorrect.org/c/international-financial-crisis






 By Ambassador Muhamed Sacirbey






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