Meanwhile, the rest of the world is a bit worried about the Tea Party/Rethuglican surge…
As Republicans prepare to assert new authority in Congress following the midterm elections Tuesday, the United States’ overseas trading partners worry that Washington’s political upheaval may pose fresh challenges to the global economy.
Despite pledges to curb government spending and the huge United States budget deficit, Republicans are expected to address anxiety over unemployment and flagging growth by pushing hardest for an extension of the income tax cuts that were passed during the presidency of George W. Bush — a move that would add to the deficit and, by extension, further weaken the dollar.
“The rest of the world, including Asia, is looking at the United States and seeing no real effective policy measures in bringing the economy back on track,” said Bart van Ark, the chief economist at the Conference Board, which measures American economic indicators. “That is making the U.S. lose its legitimacy in the global economic community as a leader in terms of providing solutions.”
(click to continue reading Shift in Washington Stirs Economic Jitters Abroad – NYTimes.com.)
and especially because the Republicans have no real plan for solving anything, their plan is simply helping the wealthy become more wealthy, valuing short term over long term. If the Tea Party Republicans have their way, the US will turn into Somalia or worse.
After the Obama administration pushed through changes to health care and to the financial system, voters signaled they want reductions in federal spending. Representative John A. Boehner, the Ohio Republican set to become the next speaker of the House, reiterated a pledge after the elections to reduce the size of government, create jobs and change the way that Congress does business.
But that is no easy task. Voters also want to keep expensive entitlements and are hoping Republicans can reverse cuts to the Medicare program and extend the Bush tax cuts set to expire at year’s end.
Those moves, if enacted into law, would make it harder — not easier — to keep Republican commitments to curb the national debt and the budget deficit. From the perspective of those outside the United States, “Republican claims to fiscal probity are a little difficult to buy into,” said Simon Tilford, the chief economist at the Center for European Reform in London. “What they’re advocating would probably increase the deficit rather than effect the dramatic reduction which they claim they want to bring about.”
There is also the risk that Congress, divided between Republican control of the House and a fragile Democratic majority in the Senate, will dissolve into gridlock. That would leave the task of supporting a United States economic recovery almost entirely to the Federal Reserve.
Tax cuts aren’t going to miraculously fix everything, in fact they make matters worse…
Moreover, if the current income tax rates are extended for the wealthy as well as for middle class taxpayers for the next few years, the action could add an estimated one to two percentage points to the deficit as a share of overall economic activity, according to Klaus Günter Deutsch, a senior economist with Deutsche Bank Research in Berlin.
If Washington ends up adding to the deficit rather than reducing it, one result could be a further weakening of the dollar against the euro, the pound and other floating currencies.