Does this ‘debt deal’ solve our debt problems?
Bob Moon: Markets overseas have climbed on the news — even though this “deal” punts much of the tough decision making into next year. On the line with us now is Mark Zandi. He’s chief economist with Moody’s Analytics. Good morning, Mark.
Mark Zandi: Good morning.
Moon: So, lawmakers in Washington are all smiles. But they aren’t all done, are they? Does this deal solve our debt problems?
Zandi: No, it doesn’t. We need $4 trillion in deficit reduction over the next 10 years. This get us $2.5 trillion. But I think that’s an achievement. It’s a big deal, and a very substantive step forward.
Moon: Well many economists, though, have said that we need to raise taxes — not just cut spending — to solve this long-term.
Zandi: Yeah, I think it would be appropriate to raise tax revenue — that doesn’t necessarily mean you have to raise marginal rates. You can cut the deductions and loop holes and credit the tax code. I think that would be much more efficient. It would create a more fair system. So I think that’s still on the table — it’s something that still needs to be discussed and negotiated.
Moon: Now the credit-rating arm of your organization, Moody’s, has said the U.S. will keep its AAA rating for now, but there’s still a widespread belief bigger cuts were needed. Does this prevent a downgrade?
Zandi: Well, of course, I’m not part of the ratings agency, I don’t speak for them. My sense is that this should be sufficient to maintain the AAA rating for the time being. But, of course these are analysts making their own decisions and views and they might have a different one than my own.
Moon: We just got paltry economic growth figures — and cuts in spending at a time like that seems to me could send us back into a spiral here. Does this plan give us the breathing room we need to get the economy going again?
Zandi: I think so. I need to see more details, but my sense is listening to the president, is that there will be no additional spending cuts at least not this year and next year that the cuts will engage in 2013 and beyond. And I think by 2013, if everything goes reasonably well, the economy should be able to digest it. Hopefully we won’t see any additional cutting in the very near term. Because of course, you’re right, the economy is still very weak.
Moon: Mark Zandi at Moody’s Analytics, thank you.
Zandi: Thank you.
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