Stephen Harper on US debt

It appears that the Canadian Prime Minister agrees with me about the US debt situation. He commented upon it in a year end interview with Global News as reported here in The Vancouver Sun, describing the US debt situation as a ‘runaway train’.

He expressed these views despite predicting that some sort of compromise will be reached on the so-called Fiscal Cliff which I have also maintained is largely irrelevant.

Interestingly he also expressed the view that some people are living in a fool’s paradise because they are lulled into thinking that they are living within their means by low interest rates and would be unable to cope if or when rates begin to rise. This is especially true of many of the people who are operating on interest only mortgages, as well as the governments of the United States and the UK.

Comments

[CST]

There a great number of people who are only afloat at this time because of the low interest rates. Unfortunately the prudent are also now being penalised with low rates of interest on savings.
I think the BOE must start to prepare people for a interest rate rise, it might not be next year but it will come. My first house was purchased at 10% fixed rate and repayment mortgage (how many people could afford that on their current property !!)
I used to have a boss who at every company meeting said we must prepare for the next crash (low oil prices), the price of oil was $120 per barrel. Everyone used to think he was mad, that was 2007, in 2009 we had $30 per barrel.

[Robert Lea]

Terry - agreed on the current US fiscal position. However, isn't it fair to say that the Americans rightly prioritised on getting their economy growing first (largely through QE and de-facto weak dollar policy) rather than immediately addressing the deficit. They were also in the advantageous position of having had their domestic housing market both crater and bottom-out. These factors put the US in a much stronger base from which to address the fiscal imbalances - assuming they decide to get to grips with it.

Contrast this with the current outlook in the UK - where housing remains over-valued and economic growth has stalled - the US looks to be in a far better place economically.

[Terry Smith]

Robert Lea; I wouldn’t disagree that the US is in many respects in a better position than the UK. I was not trying to suggest that it was not. I was trying to use the Beverley Hillbillies analogy to disabuse those who think that the US is somehow OK. It clearly isn’t, as the Prime Minister of Canada would seem to agree. The correction in the US housing market is much healthier than the UK attempts to support an over-valued housing sector. But one of the reasons the US is in a relatively good situation is its reserve currency and supposed safe haven status which enables it to fund its government debt at such low rates of interest. The problem with this is that whilst it feels quite a comfortable position, it also enables the US to put off the painful decisions which are inevitable.

[Andrew]

Harper says "the fiscal debt in the United States has put that country on a 'runaway train' that could lead to further economic damage unless American lawmakers finally get control of massive deficits."

...and then he predicts, "U.S. President Barack Obama and Republican congressional leaders will find some 'partial compromises' on the budgetary fiscal cliff issue to 'avert catastrophe' on Jan 1."

I'm confused: does Harper think cutting the deficit is a good thing or a bad thing?

[Chris Eagle]

With better employment data coming out of the US and a public apology from Niall Ferguson to Paul Krugman, not to mention appalling GDP figures from Europe, can we now at least acknowledge that austerity just isn't working.