Obama Deficit Cuts Dismissed at Davos as Not Deep Enough

Pourquoi je parle du déficit des États-Unis ?

Il ne faut jamais oublier que notre principale partenaire économique sont les États-Unis, quand ils vont mal, on ne pas va bien au Canada.

En fait le reste du monde ne vas pas bien, tous les pays démocratiques ont manqué de rigueur depuis des décennies, nous en récoltons amèrement les fruits.

Extrait de: Obama Deficit Cuts Dismissed at Davos as Not Deep Enough, Bloomberg, Simon Kennedy, January 26, 2011

President Barack Obama’s State of the Union address failed to convince executives and economists at the World Economic Forum’s annual meeting that he’s serious about taming the U.S. budget deficit.

Hours after Obama used his State of the Union address to propose a partial freeze on government spending, delegates at the conference in Davos, Switzerland, said the U.S. is lagging foreign counterparts in cutting a budget deficit of more than $1.2 trillion.

“There is an unwillingness to deal with the real gorilla in the room,” said Martin Sorrell, chief executive officer of advertiser WPP Plc. James Turley, CEO of Ernst & Young LLP, said, “we need a heck of a lot more action on it” and that Obama’s speech “lacked details.”

Obama is trying to cut a budget deficit that is almost double the average in the euro-region, which has been buffeted by a surge in borrowing costs over the past year. Failure by the U.S. to control a deficit that Obama called unsustainable was one of the biggest risks to global economic growth, said Nouriel Roubini, chairman and founder of New York-based Roubini Global Economics LLC and a Davos veteran.

Vigilantes Waking

“In the U.S. the fiscal problem is very serious,” he said. “The bond vigilantes have not yet woken up in the US way they have in the euro zone. Unless the U.S. addresses this fiscal problem, we’re going to see a train wreck.”

The U.S. dollar declined against the euro for a fourth day with the European currency appreciating to more than $1.37, the highest since Nov. 10.

Other themes to emerge on the first day of Davos include rising income inequality and higher commodity prices that are fueling social unrest in Tunisia, Egypt and Morocco. Thousands of Egyptians protesting against the government clashed with police in Cairo early today, inspired by the revolt that toppled Tunisia’s President Zine El Abidine Ben Ali. Europe’s inability to tame its sovereign debt crisis was also cited as a risk to the global economy, with Roubini saying some countries including Greece were effectively insolvent.

Obama yesterday said the deficit was “not sustainable” and proposed a five-year freeze on non-defense discretionary spending, which he said would save $400 billion over the next decade. He also endorsed additional cuts of $78 billion in the defense budget and vowed to veto any spending bill that contained earmarks, or pet projects for lawmakers districts.

U.S. ‘Outlier’

“We have to confront the fact that our government spends more than it takes in,” he said.

That plan still leaves the U.S as “an outlier” in the Group of Seven nations, said Zhu Min, a special adviser at the International Monetary Fund and a former Chinese central banker. “The urgency is not there,” he said in Davos.

The U.S. budget deficit exceeds 11 percent of gross domestic product, according to the International Monetary Fund. That’s more than the 6.5 percent average for the euro region, tops Japan’s 9.6 percent and is more than twice that of Canada at 4.9 percent.

Forty three percent of respondents in this month’s Bloomberg Global Poll said there is a moderate risk the U.S. budget deficit will provoke a crisis of confidence in the next two years that sparks a surge in long-term interest rates. Eighteen percent viewed that risk as large and 28 percent saw a limited chance of it occurring. Forty six percent of poll participants said the budget deficit will be in a worse shape in two years.

Bonds Decline

Five-year U.S. Treasury bonds dropped for the first time in four days today. The 10-year yield climbed two basis points to 3.36 percent as of 7:50 a.m. in London, according to BGCantor Market Data.

Obama is trying to balance the need to control the long- term public finances with the desires to protect economic growth and reduce an unemployment rate that has held above 9 percent since March 2009. That leaves him at odds with U.K. and German leaders who are cutting their deficits faster amid concern that failure to do so would hurt their economies by triggering higher interest rates.

The austerity approach has its own challenges with some economists saying that the government budget-cutting measures ended the U.K. recovery after data yesterday showed Europe’s second-biggest economy unexpectedly contracted in the fourth quarter. Prime Minister David Cameron, who will visit Davos later in the week, reacted by restating a promise to eliminate the budget deficit.

At least they’re trying to deal with the issue,” Sorrell said of the U.K.