This week’s report that the S&P index has cut its outlook on America’s credit future from “stable” to “negative” was clouded by questions of the index’s credibility. But a more objective voice has entered the fray to underscore the S&P’s analysis.
Olivier Blanchard, chief economist for the International Monetary Fund, told French newspaper Le Monde in an interview that the U.S. has failed to provide a way out of its debt problems. The full interview is set for publication on Thursday, but Le Monde has printed some of Blanchard’s comments already. Translated from the original French, Blanchard told Le Monde:
The United States lacks a credible plan, for the medium term, to reduce its budget deficit. The debate between the two parties that concluded on April 8 with a savings plan of $39 billion was inadequate. President Barack Obama’s April 13 speech was a step in the right direction, but more concrete decisions remain to be taken.
Blanchard is well acquainted with American economic policy, having served as an economics professor at Harvard and MIT for over 30 years (PDF). His endorsement of Obama’s speech, in which the president blasted Republican cuts and championed tax hikes on the wealthiest Americans, may be a source of consternation for Republicans, who celebrated the S&P evaluation as a sign that their cuts are necessary.
Blanchard’s comments echo an official statement from the IMF last week asserting that the U.S. needs to make “major” adjustments to its fiscal policy, lest it suffer further deficits, hugely exacerbated by accompanying increases on U.S. Treasury bond interest. The IMF lumped in the U.S. with Japan, whose own tremendous national debt has been compounded by restoration costs following March’s devastating earthquake and tsunami.
Japan has since come out in support of its partner in debt. “The US is tackling fiscal issues in various ways, so I still think US treasuries are basically an attractive product for us,” Japanese Finance Minister Yoshihiko Noda said this week.
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