Obama’s and Bush’s effects on the deficit in one graph

[Danzig]

http://www.msnbc.msn.com/id/44061369...n_the_economy/


Slow economy is a worse problem than any downgrade
Growth would help reduce debt burden, but double-dip recession may be in cards


The real risk to holders of U.S. debt is not the government's heavy reliance on borrowing or the deep political divisions in Washington. It's the weakening U.S. economy.



Until very recently, most forecasters were expecting the pace of economic growth to pick up in the second half of the year. But despite a surprisingly strong showing from the job market in July, a string of disappointing data has prompted many economists to slash their growth targets.

“Whatever (economic) growth you thought you were going to get as of a month ago, it is quite reasonable to expect less as of today,” Credit Suisse chief econmist Neil Soss said in a weekend conference call with repoters and investors.

The central issue behind the Standard and Poor's decision late Friday to downgrade the government's AAA credit rating was the level of government debt, relative to the size of the U.S. economy.

A rapidly growing economy would help, by effectively shrinking the relative size of the debt without painful spending cuts. The effect is the same as when you get a raise, and it makes your credit card debt suddenly more manageable.

But instead of growing rapidly, the nation's economy is inching ahead so slowly that it has raised concerns about a second recession — the so-called "double-dip" after the recession of 2007-09.

That's one reason S&P has said there is a one in three chance of an additional downgrade over the next six months to two years. Restoring the Treasury's AAA borrowing status, which will not be easy, also would mean getting economic growth back on track.

"It would take a stabilization of the debt as a share of the economy and eventual decline," S&P managing director John Chambers told ABC Sunday. "And it would take, I think, more ability to reach consensus in Washington than what we're observing now."

So far, the government's main response to the downgrade has been to shoot the messenger.