Sean Jones, chief executive officer of Egan-Jones Rating Agency, suggests concerns that the United States could be the next European Union are justified.
“The largest problem [in the European Union], and it is a very difficult problem to solve, is that debt relative to gross domestic product has continued to increase for most European nations,” Jones told USA Today.
He added that this problem is not dissimilar to the U.S.’ problem, in that they've been spending much more money than they've been taking in.
The European Union has heavily relied on austerity as a tool to address spending, while the United States has embarked on renowned monetary stimulus programs to boost economic activity. Jones said both strategies have fallen short.
“We don't think that austerity works. As far as stimulus, our view is that that doesn't work either, for the simple fact that it often just increases debt without a similar increase in GDP,” Jones told USA Today.
Last month, Time said the Congressional Budget Office (CBO) released two reports that seem to justify contradictory fiscal policies. One of those reports projected that the United States will face an eventual financial crisis if the deficit is not reduced.
However, debt is only part of the problem. Governments on both sides of the pond need to reduce spending and pay down their bills, but they also need to promote economic growth.
Time said the other CBO report calculated that the U.S. economy could be thrown into a recession because of existing legislation to reduce the deficit sharply next year.
For those countries whose borrowing rates have soared, Jones says ultimately there is going to have to be a restructuring of debt.
But for the United States, he is more optimistic.
“If we can get the 1 percent growth that we're experiencing now to 3.5 percent, you don't have to worry so much about the deficit,” Jones told USA Today.
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