The former International Monetary Fund chief economist Raghuram Rajan said that U.S. companies are doing well but the country is faced with entrenched political divisiveness that makes reaching any kind of compromise on the budget deficit difficult. He said U.S. firms are enjoying huge profits. The country’s politicians are unlikely to agree on how to resolve the widening deficit and related issues like Medicare until after next year’s presidential election. He said that his private sector businessmen friends are talking about investing in the United States, especially in manufacturing. He also said that the high profit margins enjoyed by U.S. firms are unlikely to be competed away anytime soon as neither the high margins that usually attracted new entries nor higher input costs seemed to be materializing. Turning to the political situation in the United States, Rajan said President Barack Obama and his Republican opponents will likely agree to raise the country’s $14.3 trillion debt limit by August 2 to avoid the first default in U.S. history. Any meaningful negotiations will only take place after the next year’s presidential election.

Former International Monetary Fund Chief Economist Raghuram Rajan