Does The US Need To Adopt Austerity Too? Sophis Investments Believes So

According to an article on CNBC, the macro-strategist at Sophis Investments, Timothy Scala believes that the US too will have to adopt austerity measures as taken by Europe. Both the US and Europe are facing more or less the same problems. The plans presented by German Chancellor Angela Merkel on Monday reflect a cut in the handouts to parents, a reduction in government jobs by 15,000 and a delay in some government funded construction projects in order to save 80 billion euros, or $95.2 billion by 2014. Yesterday, EU’s Economy Commissioner Olli Rehn said that the Eurozone countries may need to plan more budget cuts. And today, the EU was urged by Angela Merkel and French President Nicolas Sarkozy to plan a wide ban on short selling of shares and state bonds, as the market is flooded with rumors that some European countries will ultimately default on their debt. According to a report sent by the US Treasury Department to Congress, public debt will increase to 102% of gross domestic product by 2015, versus 93% this year, to $19.6 trillion. Speaking of the US debt problem, Scala said, "We can't kick this can along the road forever. If we continue to stimulate by issuing more debt or by printing, it's going to make it worse. This debt balloon has arrived. You will ultimately see it in the US." Contrary to Europeans, who have chosen to implement austerity measures, US Treasury Secretary Timothy Geithner is still focusing to stimulate growth. Some analysts believe that the time hasn’t come when the economic recovery should be crushed with austerity measures. Johnson Illington Advisors’ investment strategist Hugh Johnson said, “At a time like this, it's way too early in this recovery especially for Europe and especially for the UK to be talking that game. It's too soon to reduce (stimulus) or to eliminate it. I agree at some point you have to do something, but it's way too early.” Read more from Benzinga's Markets.