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U.S. credit downgrade reveals structural problems, affects world economy

08-08-2011 16:20 BJT

WASHINGTON, Aug. 7 (Xinhua) -- The decision of Standard & Poor's (S&P) to strip the Untied States of its top-notch credit rating has shed light on the structural problems embedded in the U.S. economy and will exert far-reaching effects on world economy and finance, said experts.

S&P's downgrade sounded an alarm to the leftover problems from the real estate bubble, a debt-reliant economic growth model and structural economic challenges in the world's largest economy, they believed.

Wars in Afghanistan and Iraq, former President George W. Bush's tax cut policies, economic stimulus measures taken by current President Barack Obama to tide over the severe economic recession, and ballooning medicare expenses in an aging society all contributed in a major way to the spiking U.S. national debt.

Despite claims by senior U.S. officials that S&P's downgrade decision was based on a 2-trillion-dollar calculation error, economists believed that what the most urgent task facing the nation is to formulate sound policies of bolstering robust economic growth in the near term and to put the nation's fiscal house in order for the long run.

A temporary cease-fire in the bipartisan fiscal war will not address the country's longer run problems, and the rating agencies are justified in reconsidering America's triple-A credit rating, said Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics, and Vincent Reinhart, an economist at the American Enterprise Institute, earlier this week in a jointly written article.

"Widespread deleveraging is thus still the order of the day. And when so many want to spend less than their incomes, an economy sputters," they wrote, adding that such a subpar performance makes it hard to overcome America's balance sheet problems, while U.S. tax policy is "shambolic" and spending discipline nonexistent.

Editor:Wang Xiaomei |Source: Xinhua

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