Economists hope for more 'adult-like behavior' during debt talks

The definition of debt

JEREMY HOBSON: Now let's get to the debt debate in Washington. The Treasury Department says the government has until early august to raise the federal debt limit or the nation will default on its obligations. Lawmakers had been trying to work out a deal that would involve spending cuts in exchange for a debt limit increase but Republicans walked out of negotiations last week. And today President Obama will meet with lawmakers to try to restart the talks.

Julia Coronado is away this morning and we're joined instead by David Kelly, chief investment strategist at JPMorgan Funds. He's with us live from New York. Good morning.

DAVID KELLY: Glad to be here.

HOBSON: Well David last time we talked, you said there needed to be more adult-like behavior in Washington. Do you think that we're getting that now that the President is getting involved himself?

KELLY: Well, I don't think I characterize anything that's going on in Washington as being adult at this stage. But I think we are gradually moving towards an endgame here. I think there is still some complications. I think an insistence that there are no tax increases doesn't quite workout if you have very heavy spending cuts. So I think there's a lot still to be negotiated here.

HOBSON: Well, do you think that if there is a deal, that it will be the kind of deal that economists are hoping for? One that cuts spending but does it over a long period of time so as not to put the economic recovery at risk?

KELLY: Well, yes actually I think that is the case. I think what they'll do is they'll come up with a big number, but it's going to be spaced out over a long period of time. And so long as you bring the deficit down slowly over time, it shouldn't disrupt the economy that much. But we do need to make some big decisions on things like taxes and entitlements and I'm not sure if we're going to see enough in the way of decision making in those areas.

HOBSON: Well, if there is a deal, David, when do you think it will happen? We talked about this August 2 deadline.

KELLY: Well, I think they'll come to the idea later than they should. But probably just before they have to. So I would say early August. I wish it was going to before then. I think it's very dangerous to play with financial markets in this way, but I don't think that Congress has got a history of coming to a deal before that absolutely have to. So my bet is early August.

HOBSON: Right up to the limit. David Kelly, chief investment strategist with JPMorgan Funds, thanks so much as always.

KELLY: You're welcome.


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