It may be long past time that US state and local governments start watching their pennies a bit more closely. As new research from George Mason University has found (bold mine):
Washington commissions are usually political punchlines. Even President Barack Obama has mocked them in past. Yet his much-hyped deficit commission is a symbol of White House plans to fix America’s long-term budget problems. Actually, it kind of is the White House plan, it kind of is the fiscal strategy.
National Review’s Stephen Spruiell makes the following point:
Italy (debt-to-GDP: 118 percent) has put together an austerity package that relies mostly spending cuts to do the heavy lifting. Portugal (debt-to-GDP: 86 percent) has put together an austerity package that relies mostly on tax increases. Because Italy is cutting spending instead of raising taxes, it has better economic growth prospects, and will bring down its level of indebtedness more quickly, than Portugal. That markets believe this is reflected in CDS spreads of 189 basis points for Italy, compared with 289 points for Portugal.
From Ed Yardeni:
The bears are mostly, and rightly, concerned that many economies around the world are overly leveraged. They claim that both private and public debt burdens are so great now that they are depressing economic growth. This has the potential to cause a deleveraging death spiral for the global economy according to the most bearish of the bears. The bulls believe that the global economic recovery has plenty of forward momentum and is self-sustaining even if many governments are forced to implement austerity measures to placate the Bond Gods.
Cutting 5 percent of optional government spending won’t plug America’s fiscal hole. Still, President Barack Obama’s proposal may buy a bit more time with nervous financial markets. It could even kick-start a needed rationalization of government outlays. Every little helps — but Obama needs to go further.