Given the choice of driving into a brick wall at 100 miles per hour or hitting the same wall at 70 miles per hour, the latter would seem to be the better choice; such has been the theme of the debt ceiling increase.
No one ever believed the country would go into default and the facts neither supported nor pointed towards a failure of the U.S. to pay its debts. As detailed in the article Debt ceiling: Crisis or political gamesmanship? the revenue flowing into the government is sufficient to pay all critical expenses albeit insufficient to pay all the lavish bills the lawmakers have rung up.
The more serious concern is the country’s credit rating. The U.S. is the only country in the world with a AAA+ rating, at the moment. However the debt rating agencies have made it clear that a minimum of a $4 trillion dollar reduction in debt would be a “good down payment,” and now that a deal has been announced that doesn’t achieve that number, what will Standard & Poor’s and Moody’s do? Should they downgrade America’s debt interest rates will begin to head upwards at an alarming rate which will likely cause an economy on life support to plunge back into recession, if it isn’t already there.
The deal reached by Democratic and Republican leaders in Congress, Obama said, “Would cut $1 trillion in spending over the next 10 years while raising the debt ceiling.” The President’s announcement came shortly after announcements by Senate Majority Leader Reid and Minority Leader McConnell that “We’re moving forward and we’re moving forward together.”
Speaker of the House John Boehner told House Republicans about the deal and his support for it in a simultaneous conference call. “Now listen, this isn’t the greatest deal in the world,” Boehner said. “But it shows how much we’ve changed the terms of the debate in this town.”
If approved by Congress, the deal will increase the nation’s debt ceiling by $2.4 trillion while cutting about that much in government spending over the next 10 years.
A special committee will be formed to identify other debt reductions, including tax reform as well as changes to entitlement such programs as Medicare and Social Security, reporting the cuts to Congress by Thanksgiving, with additional debt ceiling increases of up to $1.4 trillion. Congress can disapprove the second debt-ceiling increase, but the President would veto any attempt to withhold the second installment.
A vote in the House and Senate on a balanced-budget amendment would occur if the committee can’t reach an agreement, or if Congress rejects its recommendations, as well as automatic spending cuts if either chamber does not approve the balanced-budget amendment or spending reductions.
A series of automatic cuts would kick in should the committee fail to agree or the committee recommendations fail to pass; precisely where these cuts would fall is still unclear.
Obama will continue to try to get additional revenue by pushing the committee to eliminating tax subsidies for corporations and raising tax rates for Americans making more than $200,000.
While everyone has pointed to the Tea Party as the stumbling block to any deal, early reaction from House Democrats was quite negative. “This deal trades peoples’ livelihoods for the votes of a few unappeasable right-wing radicals, and I will not support it,” said Arizona Democratic Rep. Raul Grijalva, co-chairman of the House Progressive Caucus.
Besides all the back room dealing one stark fact remains: reducing the debt over the next 10 years will not be happening. Rather than a $2.4 trillion reduction in the debt, there will actually be a $7 trillion increase in the debt over the next decade. Only in Washington could an increase in debt of $7 trillion be called debt reduction. Go tell your kids that the wise men and woman inside the Beltway have just reduced the amount of growth in their nation’s debt and see if they can make an sense out of it. How much are we paying these folks?