More poor economic data have put Washington in a nearly impossible fiscal position. The US economy requires more stimulus than provided by the original package passed in March. But the dismal deficit outlook poses a huge longer-term threat. Indeed, it is just a matter of time before global financial markets reject this fiscal trajectory.
That could lead to a punishing dollar crisis. To avoid it, America's leaders should commit now and in detail to implement deficit reduction once the economy has strengthened. Vague promises will not work.
America's fiscal dilemma is unprecedented because the short-term need differs so dramatically from the long-term one. Today, all the data are signalling weakness. Consumer spending, which represents 70 per cent of gross domestic product, and employment are especially downbeat. Joblessness, having hit a 26-year high, will not improve much through 2010. That puts pressure on consumers. The pace of recovery, therefore, will be painfully slow.