NEW YORK (CNNMoney.com) -- The British are cutting! The British are cutting! Should the United States do so too?
Now that the United Kingdom has decided to use an ax the size of Big Ben to hack away at its budget, the United States stands out among the world's leading economic powers for trying to spend its way out of the downturn.
"The U.S. wants economic growth at any and all costs," said Axel Merk, president of Merk Mutual Funds, a Palo Alto, Calif.-based money manager specializing in currency investments.
That's a stance that many economists are growing increasingly worried about -- especially when you consider that the United States has about a $13 trillion debt load and is projected to have a record-high $1.56 trillion budget deficit in fiscal 2011.
This may be a bone of contention at the upcoming summit of so-called G-20 nations in Toronto this weekend.
"There has to at least be a plan for the U.S. being fiscally sustainable. It's amazing that we're lecturing Europeans on how to run their economy," said Thomas Cooley, a professor of economics with NYU's Stern School of Business. "Europe is at least addressing its problems even though there is pain associated with that."
There are several reasons to be worried about current U.S. fiscal and monetary policy. Merk said that his biggest fear is that the United States is boxing itself in a corner and feeding potential inflation by issuing lots of Treasury debt and keeping interest rates low.
He said that there is a risk that foreign investors could tire of the low returns from U.S. debt. If that happens, bond yields could quickly spike higher if investors sell Treasurys and move to other assets.
Mounting deficits could also eventually lead to a credit rating cut for the United States -- although most experts believe that's years away from happening.
Still, following the lead of Britain, Germany and the debt-laden PIIGS of Europe may not necessarily be the best solution either. Any budget cuts, particularly if combined with tax increases, could do more harm than good.
Yes, fiscal austerity by its nature has to hurt. That's not a reason to put off budget cuts. But going too far could kill off any chances of an economic recovery.
"This is the irony of tightening fiscal policy now: It balances the books, but it subtracts from near-term prosperity," wrote Carl Weinberg, chief economist with High Frequency Economics, a research firm based in Valhalla, N.Y., in a report Tuesday.
The biggest problem with any series of spending cuts and tax hikes is that it could make the U.S. job market even worse.
With the unemployment rate still hovering close to 10% nationwide, some think it's tough to justify severe budget cuts now.
"The economy is still struggling. There is not enough growth in the near-term to get the unemployment rate down," said Jeffrey Bergstrand, a professor of finance with the Mendoza College of Business at the University of Notre Dame. "A focus on trimming the deficit is not likely to happen anytime soon."
Bergstrand argues that the United States should not issue a new round of economic stimulus, but that it should resist calls to make battling the debt load and budget deficit a priority.
He said as long as the United States does so, the chances of a quicker economic recovery are probably greater here than in Europe. And he added that the United States has the luxury of time to tackle long-term debt concerns since inflation is not yet a real worry.
"The deficit problem won't solve itself. But we can procrastinate. Even though we are borrowing a lot of money, interest rates are still low and the dollar is not weak. That buys the U.S. time," he said.
Barry Ritholtz, the CEO of Fusion IQ, a research firm based in New York, agreed. He said that while the United States shouldn't ignore the deficit, this is the worst possible time to shift gears and label it public economic enemy No. 1.
"Reducing spending and raising taxes now would be counterproductive," he said. "I don't have a problem with fixing the deficit. But the way you do that is by raising taxes and pulling back spending during economic booms."
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