Market swings reflect deal’s anemia

By The Gazette Editorial Board

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The stock market took another wild ride on Wednesday. The big  drop, including 519 points on the Dow Jones Industrial Average, wiped out Tuesday's gains, which followed the huge losses  on Friday and Monday.

Clearly, investors' confidence is shaky. Also clear is that last week's budget ceiling deal in Congress didn't do enough to restore that confidence.

Many pundits and other observers want to blame Tea Party activists for creating the gridlock that gripped the Big Two parties during the heated, drawn-out budget debate. But blaming Tea partyers would be a cop-out.

The Tea Party's most positive contribution was to bring the nation's $14 trillion-plus debt to the forefront as never before. Then it was Congress's duty, with leadership from President Obama, to negotiate an effective budget plan. What we got on Aug. 2 was anemic: about

$1 trillion in cuts over the next 10 years and a bipartisan commission tasked with finding another $1.2 trillion by November.

We wonder: What if more credence had been given to President Obama's federal deficit commission, which, back in December, recommended a

$4 trillion debt-reduction plan?

Standard & Poor would have preferred that figure. In downgrading the U.S. credit rating on Friday, the first downgrade in 70 years, S&P's John Chambers said: “The $4 trillion, depending on whether it is front-loaded or backloaded, is not going to do the trick in terms of stabilizing U.S. government debt-to GDP ratios. But it takes you pretty far along. And I think a grand bargain of that nature would signal, you know, the seriousness of policy makers to address the fiscal issues of the United States, to actually stabilize the debt-to-GDP.”

Congress and the president mostly ignored the commission's report. No political stomach for it.

The commission said its plan would reduce the budget deficit to 2.3 percent of gross domestic product by 2015 and stabilize the national debt by 2014, reducing it to 60 percent of GDP by 2023. Right now it's at 100 percent.

The commission's plan would be painful but the pain will only get worse without more a more serious reduction in the debt and budget deficit.

To get there requires some revenue increase - a gas tax increase and eliminating many individual and corporate tax loopholes while lowering tax rates - along with lassoing the skyrocketing costs of Medicare and Social Security.

U.S. industry still produces most - two-thirds - of the durable goods Americans buy. We remain the world's economic, military and technological leader.

But lack of confidence in our top political leaders is much of what is stalling a robust recovery and keeping unemployment high. Our government policymakers must get better soon at dealing with the budget pain and restoring that confidence.