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The Standard & Poor’s decision to downgrade the credit rating of the United States for the first time echoed the nervousness of global markets in recent weeks, driven down by the relentless beat of grim economic news and a loss of confidence in the ability of political leaders to navigate challenges. read more
...“The restorative forces of the economy are very weak and the immediate forces that will be in place are worsening the problem,” said Joseph E. Stiglitz, an economist at Columbia University. “We already know it’s not going to be a V-shaped recovery. I had said in my book that it would be more of an L-shaped, slow recovery. I think the answer now is a Japan-style malaise.” ...
..."Professor Rogoff, who studies the aftermath of financial crises, has written that recoveries tend to take a very long time, particularly when downturns are as long and as deep as this one has been. The only way to hasten the process, he said, is to force the transfer of wealth from creditors to debtors — to rebalance the books. He argues that this could be done through a policy of tolerance for higher inflation, which would reduce the value of debts over time"....
..."Mr. Summers argues instead that the government should focus on tax cuts and directed spending to stimulate private spending and investment, policies for which there is little political appetite.
But even such measures, he said, have only a limited effect.
Ultimately, he said, crises are caused by too much confidence, too much borrowing and too much spending — and the irony is that they must be solved by more confidence, more borrowing and more spending." ...
Keywords: US Debt Downgrade, US Economic Prospects
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