US budget impasse poses a big risk for the dollar

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With markets transfixed by the unprecedented developments across the Middle East and North Africa, it is perhaps understandable that the emerging train-wreck that is US fiscal policy is not getting much attention. This is a mistake.

Guest post by FxPro

An unusual late-night session on Friday resulted in the Republican-led House of Representatives agreeing to chop $61bn from the federal budget in the fiscal year ending September. This was in response to President Obama’s 2011/12 budget announced last week which was widely derided (especially by Republicans) for failing to deal with America’s fiscal largesse.

Not that the Republicans are really facing up to the problems either. In the near term, the problem is that the current budget resolution expires on 4th March and, with Congress on vacation this week, this will leave only a few days to negotiate an extension. Failure to agree this extension, which ultimately funds each department, would risk a shutdown of the whole of government. The last time this took place was in 1995.

US fiscal policy is a mess, and the politicians continue to fail to provide any real leadership on the issues involved in fixing it. It is a car-crash waiting to happen.

Michael Derks


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