Tags: UK | fiscal | cliff | US

UK Telegraph: World Can’t Afford Another Fiscal Cliff

Tuesday, 13 Nov 2012 08:09 AM

By Michael Kling

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The fiscal cliff could turn the United States into another eurozone, with an economy plagued by depression and high unemployment, warns The Telegraph.

Some argue that the United States must reduce its deficit, but attempts to reduce government debts have been disastrous in much of the eurozone, writes Ambrose Evans-Pritchard for U.K.-based Telegraph. And the policy has increased debt burdens, not decreased them.

Unemployment throughout much of Europe is at depression levels — over 25 percent in Spain and Greece, 15.7 percent in Portugal and 11.6 percent in the eurozone as a whole. Youth unemployment is over 50 percent in Spain and Greece, 35.1 percent in Italy and 25.7 percent in France.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Lives and future incomes of those youths, as well as national economies, will be damaged for years, he argues, citing economist Peter Diamond.

"There is almost nothing worse you can do to the productive potential of an economy — and therefore to debt ratios — than locking a great chunk of the future work force out of the system during their formative years," Evans-Pritchard writes.

Unemployed young people will lack the skills needed for the 21st century, he argues, and eurozone leaders are fighting against large government debt when the greater problem is unemployment.

"They are crippling a generation," warns Evans-Pritchard. "Budget deficits are coming down — though far less than assumed — but the skills deficit of the jobless army is going through the roof.

"It would be a double tragedy if the U.S. succumbed debt fetishism and made the same historic misjudgment."

Recent comments have inspired optimism that House Republicans will be flexible enough to cut a deal to avert the fiscal cliff. Yet they've already pledged themselves into a corner by signing the Taxpayer Protection Pledge, he points out.

By signing the pledge, 238 Congressmen vowed to oppose not just increases in marginal tax rates, but any reduction or elimination of tax deductions unless offset by cuts in tax rates.

Despite that pledge, House Speaker John Boehner, R-Ohio, is pressing his party members to be willing to compromise, according to The New York Times. Although they will continue to oppose tax rate increases, they must avoid more nasty showdowns, he told Republicans in a conference call, The Times reports.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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