You have to earn it
Economic forecasters seem to have their fingers surgically attached to the panic button, perhaps to compensate for 2008 when they imitated Gandhi’s three monkeys, writes Anirudh Bhattacharyya.india Updated: Aug 12, 2011 23:10 IST
Economic forecasters seem to have their fingers surgically attached to the panic button, perhaps to compensate for 2008 when they imitated Gandhi’s three monkeys.
Having observed the run-up to and the aftermath of the 2008 meltdown from Ground Zero, as it were, I find the ongoing debate almost absurd, but for the sobering realisation that, if it suffers, the US will export enough economic pain around the world to wipe out its trade deficit. But if you can suspend sobriety for a while, here’s a primer on the key issues:
Double-Dip: While a double-dip may sound like something that goes really well with nachos, this isn’t particularly palatable. The US is gradually emerging from a recession, which also led to negative GDP growth in many other countries. Getting back into negative territory again after signs of positive growth is what double dipping is about.
AAA: Most of us would think of batteries, but it also refers to a country’s credit rating. Until last week, all three major credit rating agencies rated the US AAA. But then Standard & Poor’s downgraded it a notch to AA+ status, despite making a calculation error of $2 trillion. But S&P had its hard won credibility to protect, which it earned when it gave several Wall Street investment banks, including Lehman Brothers, gilt-edged ratings right before the 2008 crash. To return to the battery motif, a lower rating means that the economy runs on weaker cells, paying higher interest for borrowing. To put things in perspective, S&P’s rating for India is BBB-.
Standard & Poor’s: The credit rating agency that downgraded America. S&P has warned there’s a negative outlook on America, so it could be downgraded even further. The US president’s speech after the downgrade carried one curious correction in the text sent out by the White House: “Our problems are imminently [eminently] solvable.”
Of course, the downgrade could solve one pressing problem for Obama’s administration: Who will replace Osama bin Laden as America’s Enemy Number One. There doesn’t appear to be any substance to rumours that top executives of S&P are looking for mansions in Abbottabad.
Gridlock: Traffic conditions in any large Indian city at any hour, sure, but this is of the political variety that threatened to result in America defaulting on its debt. This gridlock is located on Capitol Hill in Washington and the reason is that Democrats and Republicans are unable to agree on corrective measures for a cratering economy. The Republicans want deep cuts in government spending, while the Democrats want to raise taxes on those earning over $250,000 annually. The result was a typical Washington Compromise, a deal that annoyed everyone.
Trillion: That’s one million million or 1,000,000,000,000. The US owes north of $14 trillion. As part of the Compromise, the US government will cut spending by $20 billion in the first year. Well, it won’t actually reduce spending, but won’t increase spending by that much. In reality, if the Obama administration is currently spending $100 and had planned to spend $200 next year and brings that down to $180, that counts as a ‘spending cut’ of $20. Government accounting exists in an alternate reality.
PIGS: The charming acronym given to the European nations of Portugal, Italy, Greece and Spain, which are said to be at risk of sovereign debt default, a situation that arises when countries have borrowed far more than they can possibly repay. If you or I behaved this way, we would be arrested. Since nations can’t be jailed, they’re bailed out.
Dollar: It’s probably not a great idea to use the word default in conjunction with the dollar, but that’s the case right now — the dollar is the default reserve currency of the world, to which investors run when there’s a crisis.
Debt ceiling: What made the Republicans hit the roof since the Obama administration wanted to increase it, which led to the Compromise. The debt ceiling has been increased to account for a period that runs into 2013, or comfortably after the 2012 US Presidential elections, the only sort of deadline politicians appear to comprehend. If this issue can be resolved, PIGS would fly.
( Currently based in Toronto, Anirudh Bhattacharyya has been a New York-based foreign correspondent for eight years )
The views expressed by the author are personal
First Published: Aug 12, 2011 23:08 IST