Fiscal Cliff Averted

So the fiscal cliff saga between the Republicans and President Obama had all the drama of the West Wing and even ended with resolution like an actual West Wing episode. The only fear is that this drama is set to re-appear in the future with both sides already highlighting the need for more debate around taxes and spending. So this cliff hanger was left with the famous words… To be continued.

The last minute discussions around this issue highlights a fundamental flaw in the American political system. Namely in dealing with major issues such as their monetary policy which displays a clear lack of co-operation between the different structures and parties involved.

Tax Policy Professor Leonard Burman of Syracuse University recently stated in the Wall Street Journal that; ‘the fiscal cliff deal didn’t solve anything. There was this manufactured crisis and they didn’t really fix this manufactured crisis, meanwhile there is a short term problem and a long term problem. The short term problem is that the US economy is weak and the long term problem is that debt is growing out of control. It didn’t do anything to solve these problems and arguably made both of them worse’.

So does this deal warrant a round of applause? The answer depends on what happens next. If this deal proves to be the first step towards a lasting agreement, it address the long term fiscal problems facing the American economy, then we could consider this a success. The package agreed in the past week raises little revenues, creates new cliffs and leaves hard choices for the future.

The next key dates will be the end of February when the debt ceiling becomes binding and the 27th March when the funding for Government expires. It looks like we will, if history is anything to go by, facing more last minute discussions and agreements. However, this is a dangerous situation for the largest economy in the world to operate. This was illustrated by the loss of the triple A rating. This is worrying, not just for Americans but the world, as it is still the case that we depend on the US economy.

Another story that caught the eye this week was a report by the Prince’s Trust on youth unemployment. This report was some sad reading. The findings, based on the biggest challenge facing the country today, youth unemployment, should be read by every MP and MLA. According to the Youth Index, one in five young people believe they have no future because of the downturn. This disaster needs to be faced head on by our politicians or this could leave long terms scars, not only on our youth, but, on the long term future of our economy.