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Paul Ryan Budget is Good for the US Dollar but Bad Politics
Axel Merk explains that Romney’s VP pick, Paul Ryan, has great intentions for the US dollar. Ryan wants to cut social programs to help balance the budget and significantly cut into the deficit. And unlike many other political budgets, ‘The Ryan Plan’ doesn’t have all the cost cutting on the back-end of the program; instead he has budget cuts evenly spread throughout his ten year plan. While this may be precisely what America needs, austerity has proven to be bad politics – just look at what happened to Europe.
The Ryan budget touches on a very sensitive issue: Medicare. Ryan’s plan proposes somewhat of a voucher program for Medicare and this could prove fatal come election time. Medicare is a program the majority of Americans do not want tampered with, despite its sustainability being doubtful without adjustments. Axel Merk stated “Make no mistake about it: no matter who wins the election, Medicare as we know it won’t be around for the next generation. Why? Because economists agree that the debt to GDP ratio would explode to unsustainable levels: there are not enough rich people in the US to tax to “fix” the problem. The basic problem: the U.S. healthcare system (before and after the healthcare reform) defines entitlements, but essentially does not have a fixed budget. Not surprisingly, costs are out of control, as the private sector is incentivized to deliver ever more services, ever more expensively.”
Merk explains that if no adjustments and cutbacks are made to programs such as Medicare, the bond market will eventually wake-up to the unsustainable US budget. And unlike Europe, the US has a massive current account deficit, which if the cost of borrowing rises for the country, it could send the US dollar into a free-fall (much worse than the euro).
VP Paul Ryan’s budget wants to cut the size of the government from 23% of the economy to 20% by 2015. And while he promotes tax cuts to various sectors and income levels, Ryan’s plan calls for a tax increase in other areas by closing loopholes in the system.
Click here to read Axel Merk’s article on Paul Ryan.