US headed for debt ‘heart attack’ warns top economist

ZURICH: The United States is heading for a ‘heart attack’ caused by a failure to manage its debt-to-GDP ratio in the face of continued political deadlock, a top economist has said.

Speaking at the Fonds ’12 conference in Zurich, Simon Evenett, professor of economic trade and economic development at the Universitat of St Gallen, discussed the current political impasse in the US caused by some of the most diametrically opposed politicians in recent times.

He said younger Republicans – most noticeably with ties to the Tea Party – will make it hard for a democratic regime to impose fiscal consolidation measures. This, he said, will add to the debt burden while helping to ensure that the overall situation remains unresolved.

‘At some point this growth in public debt will start eating into economic growth and the US will face a very serious problem,’ he said. ‘If someone eats a steak every day we know that they are going to have a heart attack, we just don’t know when.’

‘If they keep adding debt and this continues to eat into their GDP and their growth, then they are going to have a very serious problem. This is the situation the US finds itself in,’ he said.

Evenett, who specialises in US economics and politics, said the debt is now the equivalent to 72% of GDP.

Over the course of the next two years, the country also needs to sell bonds equivalent to 30% of its debt in both of the two years, this Evenett said, is a serious concern for US investors.

Looking ahead, he said he anticipated market volatility caused by the November presidential race. However, to his mind, the outcome of the election itself is a foregone conclusion.

‘The way things are shaping up I see an Obama victory and I think he will destroy [Mitt] Romney. People talk about how strong Romney’s machine is but Obama’s machine is so much stronger.’

‘He destroyed Hilary Clinton and she was a much, much stronger opponent than Romney. The only thing that could potentially derail Obama is massively bad economic news coming out of Europe.’