The US budget deal

on Thursday, 12 December 2013. Posted in ,
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Paul Ryan - budget dealWe have always thought 2014 would be a solid recovery year, provided US congress didn’t shoot themselves in the foot again.  It appears that overnight they have put the self-harm aside, at least for a year.  The outlook for 2014 seems a lot brighter all of a sudden.

The details of the budget deal seem fairly vanilla.  As the Economist put it “a seemingly impossible mix of modest deficit cuts, spending rises and revenues magically raised without corresponding tax increases.”

Good news is bad

Faced with unexpected deal, the markets of course fell.  They reasoned that the deal raises the chances of tapering (probably right) and that interest rates would swiftly rise (probably wrong).  Lost in the whole discussion of tapering and interest rates is the good news.  The US economy, without much help from congress is recovering as shown by an increase in US federal government revenue, which is now much higher and continuing to improve.

Now as long as they agree to stay out of the way, US and world economy will be better off.

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