WASHINGTON, Nov 1 (AFP) - Tuesday's victor, be it George W. Bush or John Kerry, must scale back pre-election largesse or drive the United States deeper into debt, analysts warn.
"Political posturing on matters of tax reform or entitlements expansion must now be put aside in the post-election period; tax increases and expenditure cuts -- however unpopular -- are the only way out," said Morgan Stanley chief US economist Stephen Roach.
"Politicians, of course, don't want to tell you that. Yet a saving-short US economy is utterly incapable of growing its way out of a deep budget hole. The heavy lifting of deficit reduction is an urgent imperative -- especially in the early months of any political cycle."
Both candidates have promised to halve the deficit in five years, after Bush's administration posted a record shortfall of 413 billion dollars for fiscal 2004, which closed on September 30.
"An expression used in golf is apt: You play the ball where it lies. In this case, the ball is in deep rough and the toughest holes are ahead," warned a report by the fiscal discipline advocate, Concord Coalition.
Each of the candidates' spending and revenue plans would cost a net 1.3 trillion dollars over 10 years, it estimated.
"Discussion of the budget deficit has had an 'Alice in Wonderland' quality," Lehman Brothers chief US economist Ethan Harris said.
"The candidates spoke of budget discipline while offering specific proposals to increase the deficit, coupled with vague promises to control spending. Meanwhile, a series of pork barrel bills were enacted."
Neither candidate had hinted at a fundamental reform of the pension and health systems, he added.
"But perhaps the most immediate challenge is on the international front. The huge current account deficit is beginning to force down the dollar," Harris warned.
International coordination may be needed to help adjust the deficit, he said. "Will the new president embrace a coordinated effort, or will there be a messy string of trade disputes and threats?"
The trade gap grew to a record 489.4 billion dollars in 2003.
Coupled with the budget deficit, it is a long-term concern because it reveals the US dependence on financing by foreigners, particularly from China. China accounted for one-quarter of the 2003 US trade deficit.
Economic growth, meanwhile, is not yet sufficiently vibrant to churn out jobs fast enough to satisfy the unemployed.
"The economy has improved, but it (the wealth) has not dropped down to benefit the average American household. In terms of household finances, most are not back to where they were four years ago," said Mark Zandi, analyst at economy.com.
For many Americans, the priority is job creation. The economy added 96,000 payroll jobs in September, leaving 820,000 fewer payroll jobs than when Bush took office.
"I don't think it is going to be that easy," said Wells Fargo Banks chief economist Sung Won Sohn.
11/01/2004 17:08 GMT - AFP