The Obama administration lacks the “political capital” for serious financial reform, and that is putting the U.S. in a perilous fiscal position, writes former Clinton White House economist Nouriel Roubini.
In his column in Forbes magazine, Roubini, a professor of economics at the Stern School of Business at New York University and chairman of Roubini Global Economics, a consulting firm, notes that the president’s “waning political capital” will stand in the way of achieving the left’s fiscal, social and economic goals.
The administration has proposed a new budget, as well as a tax on banks, and is actively marketing the ideas, but these proposals fall short of the required “aggressive fiscal reforms” to make America competitive again, writes Roubini.
“The fiscal deficit is likely to remain near $1 trillion and exceed 5 percent of GDP over the next decade and trend higher thereafter,” writes Roubini.
“Near-term spending on fiscal stimulus and defense will remain high at least until 2011, as Obama's proposed three-year freeze on discretionary spending excludes defense and entitlements.”
What is more, the sluggish and jobless economic recovery and “weaknesses in the financial and household sectors” will keep federal revenues down, adds Roubini.
Given this “ticking fiscal bomb,” as well as midterm and presidential elections in November 2010 and 2012, the necessary reforms will not be undertaken, adds the economist.
“With a subpar economic recovery and an unemployment rate above 8 percent during 2011-12, the Democrats, struggling to maintain power, are unlikely to approve spending cuts, while the Republicans, seeking to revive their prominence, will be unyielding on tax hikes,” writes Roubini.
“Even if Obama manages to establish a fiscal commission by executive order, Congress will be wont to reject any radical fiscal reform proposals.”
Others agree with that analysis.
The BBC is reporting that the U.S. had a “record” deficit last year, and it will continue to rise until 2020.
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