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Obama gets serious on tackling debt

Marketplace Staff Jun 28, 2010

Obama gets serious on tackling debt

Marketplace Staff Jun 28, 2010

At the G-20 summit over the weekend, leaders of the world’s wealthiest nations agreed to cut their deficits in half by 2013. But for now, they’ll keep the focus on economic growth. Speaking at the summit yesterday, President Obama made some domestic news. He gave us a little preview of his budget plans for next year — when we’ll likely face a deficit of more than $1.5 trillion. And President Obama said he’s serious about tackling that.

“People should learn that lesson about me because next year when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, because I’m calling their bluff,” said Obama, referring to Republicans, who have been critical of the Obama administration’s spending since he took office.

Almost no Republicans supported the stimulus bill when it passed last year. And more recently, unemployment benefit bills keep getting held up by Republicans because of concerns about adding to the deficit.

How will Obama cut the deficit?

President Obama didn’t really say how he planned to cut the deficit, but he did mention the tax code, which he called messy and unfair. Earlier this year, President Obama did appoint the final members of a bipartisan debt commission, which is supposed to report to him on ways to improve the nation’s long-term fiscal health shortly after this year’s elections.

We’re focusing on this austerity talk from the president. But he also spent a lot of the G-20 trying to push back against a lot of this deficit hawkishness, no?

He did. In his press conference yesterday Obama mentioned more than once that it would be a mistake for countries around the world to rush to the exits at the same time, meaning cut back on their stimulus efforts. So he said while debt and deficit problems do need to be dealt with over the long term, the recovery is “still fragile,” and the focus should still be on growth.

Sam Stovall, chief investment strategist at S&P Equity Research, echoed President Obama’s message. “They don’t want to cut back too quickly,” he said. “Otherwise the emerging recoveries will be cut short.”

More on the agreement

As we mentioned, the G-20 countries agreed to cut their deficits in half by 2013, and that includes the U.S. But there is a compromise here — plenty of wiggle room. Because the G-20 have agreed to pay attention to growth, a country that feels it will be jeopardizing its recovery by meeting that target could be let off the hook.

Was there any movement at the G-20 summit on bank regulations?

Yes. They’ve agreed to raise significantly the amount and quality of capital that banks need to hold, but there are no numbers yet. But there is a compromise here, too. G-20 countries won’t be forced to adopt new regulations in a short time frame.

“There’s signaling of a lot of flexibility. Different countries with different circumstances, different needs, may be given up to five or six years, fully, to implement the new arrangement,” said Dr. Dominic Swords of the Henley Business School.

More details of those new arrangements are likely to emerge at the G-20 summit in Korea in November.

What’s the grade this G-20 meeting receives?

Supporters of this kind of summit always say it’s good for the leaders to talk, to get together. While critics will say it doesn’t really make a lot of sense to spend $1 billion talking about the need for austerity.

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