Economist Nouriel Roubini, known for his prescient warnings about the 2008 financial crisis, said Tuesday the U.S. won't default on its debt but the country will suffer a fiscal drag, Marketwatch writes..
Investors have been spooked by recent news that with a debt default deadline next week, Democrat and Republican lawmakers have moved even further away from agreement, pushing separate plans for reducing the U.S.'s deficit and raising its borrowing limit.
"There are about eight days until the deadline. My baseline scenario is still an agreement will be reached. I don't think the U.S. will default," Roubini, a professor at New York University, told a forum in Shanghai.
But the U.S. economic slowdown is a chronic issue rather than merely a "soft patch," he said. Roubini said that growth in public consumption has been artificially boosted by the government deficit. So when the authorities eventually have to reduce spending, raise taxes, or cut transfer payments, not only will that be a fiscal drag, but will slow the growth of disposable income.
Find out more at http://www.marketwatch.com/story/roubini-us-wont-default-but-will-see-fiscal-drag-2011-07-26
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