The United States must quickly resolve its financial and economic problems by curbing its runaway spending or it risks plunging back into recession, or stagnation at the very least, warns William Isaac, former chairman of the Federal Deposit Insurance Corp.
“The problem is we’re spending too much,” he tells Newsmax TV in an exclusive interview.
He warns that if the nation doesn't change its ways, “we could have another recession, and, the best case probably would be stagnation — that we just continue to move sideways as we have been doing for the past three years.”
Watch our exclusive video. Story continues below.
The key to shrinking the government’s $16.4 trillion debt burden isn’t lifting the debt ceiling using smoke and mirrors, but rather real bipartisan cooperation, he
Some commentators have even broached the solution of issuing a $1 trillion platinum coin to cover an increase in the debt limit. “That and some other ideas floating around are not really serious ideas,” he says.
“If we start doing hokey things like that, I don’t doubt that the rating agencies are going to lower the credit rating of the United States again, and that would create a real problem,” said Isaac, author of “Senseless Panic: How Washington Failed America.”
Editor’s note: To order ‘Senseless Panic’ at great price — Click Here Now.
Gimmicks aren’t the way out of our woes, says Isaac, now head of FTI Consulting's Financial Institutions group. And what’s the biggest of them?
“The problem is we’re spending too much,” he says. “We can’t afford what we’re spending, and we need to make some reforms over a period of time along the lines of what the bipartisan Simpson-Bowles Commission recommended.”
Isaac is referring to the panel appointed by President Barack Obama in 2010 to come up with ways of reducing government debt. Congress never acted on its recommendations for spending cuts, tax increases, and entitlement reform.
Video: Economist Predicts 'Unthinkable' for 2013
But, “the sooner we do it [follow the Simpson-Bowles suggestions], the better off we’re going to be and the faster this economy’s going to get turned around, because confidence will be restored,” Isaac says
Absent such an agreement, he holds a negative view for the economy this year. “If we don’t do that, we’re in for a 2013 that’s not going to be very pleasant,” he says.
Some commentators have advanced the notion that a government shutdown and/or a drop in the government’s credit rating if Congress and the president can’t agree on lifting the debt limit won’t hurt the economy much. Isaac begs to differ.
The credit rating was reduced from triple-A by Standard & Poor’s in 2011. “Having the credit rating reduced by the other two agencies [Moody’s Investors Service and Fitch Ratings] could cause serious problems,” he says.
There are a lot of institutional investors that can only purchases in triple-A securities. If Moody’s and Fitch decide on downgrades, “you’re going to find a lot of firms around the world that will simply not be allowed to buy U.S. government securities,” Isaac says. “That is potentially a very serious event.”
As for Obama’s decision to appoint Jack Lew as Treasury Secretary, Isaac views him mostly favorably.
“He’s been in government a number of times in important positions,” Isaac says. “He’s deeply immersed in the budget and fiscal policies.”
But Lew is inexperienced in the financial sector. “That’s an important area that I hope he will be able to get up to speed on quickly,” Isaac says.
Video: Economist Predicts 'Unthinkable' for 2013
© 2013 Moneynews. All rights reserved.