Debt Ceiling Deal Still Not Enough?

A recent CNBC report casts a negative shadow over the deal that, at the 11th hour, prevented the U.S. from defaulting on its debt. The report mentions that the U.S. debt crisis appears to have been resolved temporarily, but politicians and economists are still warning that the deal won’t resolve all of the country’s economic ills. The report, based on statements made by Anthony Doyle, director of investment specialists at M&G Investments, even suggests that the country is headed for another recession.

Doyle points out that “when US GDP growth falls below 2 percent, it usually means that a recession is not far away, and combined with yesterday’s much weaker than expected ISM report and an unemployment rate at 9.2 percent, it suggests that the U.S. Federal Reserve won’t be in any rush to hike interest rates this year.”

The U.S. economy grew by just 1.6 percent in the second quarter of 2011, according to official figures released last week. Investors have also been spooked this week by Institute of Supply Management (ISM) data showing that its manufacturing index read 50.9 in July, barely above the 50 mark that separates expansion from contraction, and new orders contracted for the first time in two years.

The last U.S. recession lasted 18 months, the longest since World War II, according to the National Bureau of Economic Research. The respected research body said the last recession began in 2007, and the recovery did not start until June 2009.

President Obama signed the new debt bill, which limits student loan cuts (among others), a day after it cleared the House of Representatives by a 269-161 margin, and shortly after it passed the Senate by 74-26 votes overnight. The emergency bill increases the nation’s $14.3 trillion cap on borrowing.


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