Debt could undermine American global influence (+ Davos analysis); China warns US off meeting Dalai Lama; Malaysian sodomy trial; New al Qaeda alliance in Africa; and more

Top of the Agenda: Deficit Threatens US Power

Growing budget deficits in the United States will leave President Barack Obama no room for new domestic initiatives, and the rapid debt growth could erode the country's global influence, the New York Times reports. Obama's proposed remedy would make the problem worse, by increasing deficit spending to lower the unemployment rate in the short term, before the deficits can come down. Part of Obama's challenge is that his political warnings about the consequences of soaring debts are contradicted by market signals. The Treasury has been able to borrow money to finance government deficits at very low rates, indicating that investors still believe they will be paid back.

Obama announced plans Monday to crack down (FT) on international tax evasion as a way to help reduce the deficit. His administration estimates the crackdown would raise $122 billion over the next ten years. As part of the plan, US-based multinational companies that transfer brands and patents to foreign affiliates (and pay little tax overseas) would pay a surcharge on the excess returns on those assets. The proposal would also deny companies borrowing money to invest overseas any immediate tax deductions on the interest payments. Republicans say the measures would raise taxes on the very companies that are creating jobs now.

Analysis:

Economists at the World Economic Forum in Davos, Switzerland, warn (DerSpiegel) that paying down massive public debt will be "very, very painful" for many countries. Deep spending cuts and significant tax hikes may be unavoidable.

In the Wall Street Journal, CFR's Amity Shlaes says FDR's war against business helped his popularity but hurt the economy and that Obama should take a more moderate approach.

A New York Times editorial says Obama got his priorities right in the 2011 budget and that the recovery is, as Obama estimates, too fragile to immediately make deep cuts in government spending.

 

PACIFIC RIM: China-US Ties Strained Over Dalai Lama

China warned against (Xinhua) the United States meeting with the Dalai Lama, saying it would harm US-China relations.

Malaysia: The trial of Malaysian opposition leader Anwar Ibrahim, who faces sodomy charges, could reshape Malaysian politics, TIME reports.

 

ELSEWHERE:

Karachi Ethnic Killings Escalate
Al-Shebaab to Join al-Qaeda Efforts

 

This is an excerpt of the CFR.org Daily News Brief. The full version is available on CFR.org.