Partisan Battles May Hamper Fiscal Compromise

By Korollos Shalaby

Fiscal experts have argued that the political class in the United States will have to put aside their differences to put together a fiscal deal that will not jeopardize the weak global growth before it reaches the debt ceiling.

The decision to cut spending will not be easy and will have a negative effect politically for Republicans or Democrats. But progress is not feasible if the political elite hold the nations fiscal talks hostage.

The decision taken to solve the fiscal problem and the debt ceiling "contravene the interests of parties, whatever, going to the root of the problem and trying to solve it really will be a politically unpopular decision and you just want to stay within of the power game, so it's so complex, "notes the director of the Center for Economic Analysis ITESM, Leticia Armenta.

On Wednesday the U.S. House of Representatives approved an extension of the federal debt capacity until May 19, placing the bill promoted by Republicans on the fast track to get ahead in the Senate, led by Democrats, it to avoid a default by the U.S. government.

Two key opportunities make these negotiations. Unless the U.S. Congress acts before March 2, the so-called economic kidnapping trigger spending cuts by about $ 1 trillion in defense and elsewhere, something no one wants in the Congress, mentions a report by Jeanne Sahadi, from CNNMoney.com.

If no action is taken for the March 27, federal funding will run out completely and be paralyzed government operations until lawmakers can find a way to agree on spending and taxes for the next year or at least for the coming months, the report said.

The risk that the U.S. economy is hostage to politicians is real, as is the case in other countries. Delays or doubts about whether the talks will be sucessful are likely to inhibit flows of capital from banks and other financial institutions. 

"At the end of the day the game and lay politicians do not always go hand in hand with better growth prospects," he adds.

According to the CI Banco analyst Mario Copca the fact that the U.S. economy has not fallen into an abyss tax on 1 January and has postponed the debt ceiling until 19 May, the market has interpreted as something good and expects American politicians to reach an agreement later.

"Regularly economies become hostages of politicians, but this year both in Mexico and in the U.S.," said Copca.

In the U.S., some decisions have been postponed, adds. There are no agreements between Democrats and Republicans, and "no absolute majority for approval of plans and that's the problem."

Copca believes that the market has reacted well, but will face more risks when approaching the negotiations and reach an agreement.

"So (the politicians) prefer to kick the ball a little more and hold it to see if extra reach agreement reduces the fear that they will not achieve a consensus and that this could result in a more [problems] for the economy. While in the U.S. are less prone to such events, the political class is the same throughout the world. "

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.