President Barack Obama is warning a failure to sort out the US budget deficit will seriously damage the economy.
He spoke one day after the ratings agency Standard & Poor’s changed its outlook on the US to negative from stable, threatening to downgrade the United States’ coveted AAA credit rating over fears that politicians may be unable to agree on cutting the deficit.
Blaming the previous Republican administration for America’s current budget problems, Obama said: “We had a surplus, back in 2000, 11 short years ago, but then we cut taxes for everybody, including millionaires and billionaires, we fought two wars, and we created a new and expensive prescription drug programme, and we didn’t pay for any of it – and as the saying goes, there is no such thing as a free lunch.”
Obama said he believes Democrats and Republicans can come together and reach a deal to cut the budget deficit but he admitted it will not be easy.
Economist Mohamed El-Erian, head of global investment management firm PIMCO, said they must, for everyone’s sake: “No one can escape the implication of a further deterioration in the US fiscal situation. And it’s not just about the US, it’s also about the global economy. The US is at the core of the global economy.”
Other economists pointed out that the S&P credit outlook change should focus the politicians, making them realise this problem cannot be left until after the next presidential election in 2012.