Nobel winning economist says Obama has given in on US debt deal

Washington/London, Aug.2 (ANI): Nobel prize-winning US economist Paul Krugman has accused President Barack Obama of surrendering to Republican opponents on the issue of the US debt deal.

"The deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America's long-term deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana republic status," the Guardian quoted Krugman, as saying.

Many economists believe that America could soon lose its triple-A credit rating, despite a deal being agreed.

Standard and Poor's, the rating agency, recently said that a credible fiscal plan would need to include four trillion dollars of deficit-reduction measures.

"Avoiding the worst case scenario of a default on US Treasury obligations will not prevent a downgrade of the triple-A sovereign rating," said Kevin Daly, emerging market debt portfolio manager at Aberdeen Asset Management.

He added: "So, it's time for us all to figure out just what it means when the US gets downgraded."

Stuart Gulliver, chief executive of HSBC, said the progress made over the US debt ceiling was "very welcome", but also warned that America could have its credit rating cut.

According to the Guardian, the overall view on the issue is that it has been a messy political affair that has taken too long to reach an appropriate level of understanding or a solution.

The full details of the plan have not been released. However, a fact sheet issued by the White House showed that spending would be capped by 900 billion dollars over the next 10 years.

A bipartisan committee will then be established to agree to a further 1.5 trillion dollar of deficit-reduction measures, which could include tax rises. If this committee cannot agree a deal, then an "enforcement mechanism" will trigger around $1.3tn of spending reductions beginning in 2013. (ANI)