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Linking debt limit to spending cuts critical to U.S. economy: expert

06-03-2011 08:54 BJT

WASHINGTON, June 2 (Xinhua) -- The argument of linking the debt ceiling to spending reductions is essential to a credible return to sound fiscal policy in the United States, John Taylor, a Stanford University professor, said Thursday.

"Such a link is good economics in theory and in practice," Taylor said in an article carried in Thursday's Wall Street Journal, adding that the practice is conducive to ending the ongoing debt explosion.

A statement released earlier this week that Taylor signed with 150 other economists, including former Treasury Secretary George Shultz and Nobel Prize winner Robert Mundell, noted that "increasing the debt ceiling without significant spending cuts and budget reforms...will bring further harm to private-sector job growth in America".

The House on Tuesday failed to pass a bill to raise the borrowing cap without making cuts in government spending, a showdown from House Republicans to press the administration to cut spending.

The U.S. Treasury Department stressed on Wednesday that the nation has hit the 14.29 trillion U.S. dollars legal ceiling on borrowings and was starting to take extraordinary measures to buy some time until Aug. 2 for Democrats and Republicans to ink a deal and stave off a default on U.S. debt.

The economist, who has proposed the widely known Taylor Rule, argued that with the U.S. government spending rising to more than 24 percent of gross domestic product (GDP) now from 18.2 percent in 2000, "if Washington does not change the budget game now, people will sensibly reason, it will never change the game".

Top economic officials from the Obama administration recently urged Congress to raise the borrowing cap without any commitment to reduce spending growth, a so called "clean debt limit hike".

"How can today's politicians expect future politicians to adhere to such a policy if they can't do so today? " Taylor noted.

Editor:Yang Jie |Source: Xinhua

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