A tumbling stock market and a credit-rating downgrade from Standard & Poor's provide further evidence that much is amiss with the U.S. economy and its public finances. It will take more active leadership, not just from politicians but from business leaders, to reverse course.
Despite the deal to increase the debt ceiling and keep default at bay, the U.S. deficit crisis has not been solved. Much of the problem was punted, to a subcommittee of Congress that has only a few months to find $1.2-trillion in budgetary savings. The dysfunction of the summer could well reproduce itself – Republicans and Democrats don't even agree on whether the committee has the power to raise revenues.
But the U.S.'s problems extend beyond its balance sheet. Fully one-sixth of adults who want full-time work cannot find it. The home ownership rate is declining, and more than one in four homeowners with a mortgage owe more than their property is worth, reports Bloomberg.
The federal government does not, by itself, have the resources or the ability to lead the economy out of recovery. A renewed commitment to invest by the private sector is needed. And companies are tying up their cash instead of hiring or upgrading their machinery – for too many, the U.S. economy has become one giant mattress under which any extra dollar is stuffed.
The proof is in the numbers. The availability of bank credit fell in 2009, 2010 and for the first two quarters of 2011. Cash deposits at U.S. commercial banks now stand at $981-billion, up 39 per cent in this year alone. Consumers are staying at home – consumer spending in June 2011 (the latest month available) fell for the first time in two years.
Two extreme manifestations of this phenomenon emerged last week: Bank of New York Mellon Corp. announced it would start charging clients who kept more than $50-million in cash deposits. And there was gallows humour at the revelation that Apple Inc. had, at one point, more cash on hand than the whole U.S. federal government.
It is easy to sit on the sidelines and complain about policy uncertainty in Washington – around the tax code, say – as a reason to procrastinate. But if the private sector waits any longer, it risks multiplying the damage – not just to the U.S. economy, but to those economies, including Canada's, that are so dependent on it. The time for leadership, both public and private, is now.