Wednesday, April 20, 2011

IMF Chief Economist Warns on U.S. Deficit

The United States lacks a credible plan to cut its deficit over the medium term, the International Monetary Fund's chief economist Olivier Blanchard told French daily Le Monde in an interview.

"There are reasons to be worried. The United States lacks a credible plan, for the medium term, to reduce its budget deficit," Blanchard was quoted as saying. Standard & Poor's on Monday announced that it was putting the United States' triple-A credit rating on 'negative' watch.

While these warnings, if anything, seriously underestimate the potential debt crisis in the United States, I have to wonder if they will provide cover, planned or otherwise, for the "tax the rich" crowd to demand higher taxes.

It should be understood that the problem is not a revenue problem, but a spending problem. The current bureaucracy not only sucks revenue from the productive private sector but further suffocates the economy via regulations that promote the status quo and hampers creativity. Its a double-edged sword of destruction that can only be changed by way off major government spending cuts. It is noteworthy that S&P and Blanchard fail to mention this piece to the puzzle.

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