Tags: Roubini | US | Default | fiscal

Roubini: US Will Avoid Default but not Fiscal Drag

Wednesday, 27 Jul 2011 12:15 PM

U.S. policymakers will agree to lift the $14.3 trillion debt ceiling and avoid a government default but won't avoid steering the economy away from a fiscal drag, says New York University economist Nouriel Roubini.

The government says Congress must lift its $14.3 trillion debt ceiling or risk a default on Aug. 2.

Both Republicans and Democrats in Congress say they don't want to see a default, but are at odds over the role tax hikes should play in narrowing fiscal deficits in exchange for lifting the government's borrowing limit.

They'll likely work things out, Roubini says.

"There are about eight days until the deadline. My baseline scenario is still an agreement will be reached. I don't think the U.S. will default," says Roubini, according to MarketWatch.

roubinigetty200.jpg
Nouriel Roubini
(Getty Images photo)
Still, lawmakers will likely agree on spending cuts and eventually hike taxes, and such a fiscal drag will weigh on economic growth.

That's going to take place in a world marked by sluggish recovery from the Great Recession.

"(Recovery) has been so weak because this was not a traditional recession, but was a recession caused by a financial crisis brought on by too much debt and leverage first in the private sector and now in the public sector," Roubini says.

Republican Senate Leader Mitch McConnell says both sides need to concede a little more to avoid a default, which could cost the U.S. its AAA credit ratings.

"We are going to have to get back together and get a solution here," McConnell says, according to CNN.

"I am prepared to accept something less than perfect because perfect is not achievable."

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U.S. policymakers will agree to lift the $14.3 trillion debt ceiling and avoid a government default but won't avoid steering the economy away from a fiscal drag, says New York University economist Nouriel Roubini. The government says Congress must lift its $14.3 trillion...
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2011-15-27
Wednesday, 27 Jul 2011 12:15 PM
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