Tuesday, August 2, 2011

Debt Deal Done- 'It's Better Than Nothing'

A default was averted today when President Obama, with no fanfare, signed the debt ceiling bill into law shortly after it passed the Senate on Tuesday. Compromise was achieved, but at what price?

In a recent Washington Post/Pew Research poll, Americans put their disgust into words. The most common description was “ridiculous”, followed by “disgusting” and “stupid”. No, they weren't talking about Glenn Beck. They were talking about the budget negotiations that led up to the bizarre budget compromise.

If the debt debate proved one thing to America, it's that Washington is broken, and in need of some serious fixing. And there has been damage to the reputation of pretty much everyone in Washington.

The controversy was somewhat contrived to begin with. First of all, we call it a “debt ceiling”, but it's continually being raised. The problem this time, however, is that many Republicans, led by the right-wing Tea Party nut jobs, decided that they didn't want to compromise, default or no default.

In his televised address to the nation on July 25th, President Obama pointed out that raising the debt ceiling in America is a routine matter. “Since the 1950s, Congress has always passed it, and every President has signed it,” Obama said in his speech. “President Reagan did it 18 times. George W. Bush did it seven times. And we have to do it by next Tuesday, August 2nd, or else we won't be able to pay all of our bills.”

Obama went to Harvard, so I'm sure that he can add. And he met the August 2nd deadline with a few hours to spare, so I guess we can now pay all of our bills. But that's the problem. The debt ceiling was raised, but when it comes to the national debt, we're talking trillions. It's rising at a staggering $3.8 billion a day, so you would think we would have come up with a good way to do pay our bills by, for instance, increasing revenue in addition to cutting spending. This is where it gets confusing.

The bill allows Obama to increase the borrowing limit by $400 billion immediately and mandates an additional $917 billion in cuts over the next decade. In addition, Obama can raise the limit another $500 billion later, and only be blocked if Congress votes to disapprove, by offering what the legislation oddly describes as "a joint resolution of disapproval". Since Congress would certainly disapprove and Obama would be certain to veto, thereby guaranteeing a debt limit increase, why is this bizarre charade necessary anyway, other than to score political points?

Then there's the “super committee”, a new 12-member group, split equally among Democrats and Republicans, which would have the authority to recommend another $1.5 trillion increase in the debt ceiling, and is expected to convene in the fall. Whether such a committee is actually constitutional is another matter, but if the committee fails to approve the cuts, the President can still raise the debt ceiling, but only by an additional $1.2 trillion. However, that would result in cuts split evenly between defense and non-defense programs, unless some other “as yet not agreed upon” budget measure can be agreed upon.

In addition to increasing the debt ceiling, the "super committee" would also theoretically have the power to raise taxes. Since this "bipartisan" committee would consist of six hand-picked anti-tax Republicans, this would seem highly unlikely. Of course, there's the matter of the expiration of the Bush-era tax cuts which expire at the end of 2012. But more about that later.

If this whole convoluted budget deal sounds confusing, it is. But one thing stands out: Republicans have insisted all along on budget cuts only, without any new revenue. And that, in a nutshell, is what they got. How do you reduce this enormous budget deficit without any new revenue? Well, I'm not a Republican, so I can't answer that.

The problem with all of this is that the national debt is over $14 trillion, so a few billion here or there may add up to a trillion or two, but it won't make much difference in balancing the budget in the long run.

What is so wrong with higher taxes on the wealthy, which got the economy back on track under President Clinton's administration in the 1990s? How about taking away those silly farm subsidies for rich people with too much land? Or taxes on corporations with million-dollar loopholes? And the list goes on and on, but sadly, the Republican party is more intent on taking away college grants for poor students than on getting the rich to pay their share. So far, college grants are off the table, but they may be among the first programs to go, since the deck is stacked in favor of the wealthy.

The one good thing to come out this debt fiasco is that there is no default. Confidence in our economy has been damaged, especially internationally, by this entire spectacle. But now we have to really concentrate on creating an environment under which businesses feel confident enough to invest and ultimately to hire. Under the new compromise, however, this may be impossible. Budget cuts and no new revenue lead to less jobs, but the GOP wants us to believe otherwise.

Both Republicans and Democrats have said that they are not happy with the bill, but both sides say it was necessary to avert the disaster of a default. The prevailing wisdom is that it's “better than nothing”. And that about sums up the problems with the political system in America today.

President Obama's original intention was for a “clean”, unencumbered bill to raise the debt ceiling. Republicans, goaded on by the lunatic Tea Party fringe group, said no. The Speaker of the House, John Boehner, had to fall in line with the rest of his party of head cases and special-interest candidates and, as well-intentioned as Boehner may have seemed, he never made much economic sense.

Although it may seem to some people as if Obama is the loser in all this, he was still able to keep the core institutions intact - Social Security, Medicare and Medicaid. In addition, the deal allows Obama to focus on the 2012 election without the distraction created by another imminent default. In the end, the majority of Americans are fed up with the dysfunction of the political process as a whole, and they blame Republicans and Democrats alike. Obama's approval ratings are low, but right now, so are the approval ratings of pretty much everyone in Washington.

The debt deal is burdened by the fact that deficit reduction in the middle of a severe recession is not only a stupid idea, but a dangerous one. Reducing the deficit in a period of high unemployment will harm the economy by putting more people out of work and decreasing consumer demand.

Getting back to the Bush tax cuts, which expire at the end of 2012, this could be Obama's most powerful weapon. And therein lies Obama’s opportunity. With Republicans so focused on keeping the Bush tax cuts alive, the President could use another extension to protect the Democrats' most cherished programs when the congressional "super committee" deliberates. If Obama dangles the possibility of extending some or all of the Bush tax cuts in front of the recalcitrant committee members, he could not only gain significant leverage to influence the outcome of the committee, but he could also position himself well for the election in 2012. In this case, he would be seen as an honest, intelligent, and moderate broker between the extremes of both parties.

It was clear to all rational people that budget cuts had to at least be matched by new revenue. Obama was left with a debt crisis and since time had run out, he had no choice but to compromise.

We can always ask what would have happened had Obama refused to budge. But he wasn't willing to take that chance, and that's probably for the best. What we got was “better than nothing.”


  1. Nobody likes the deal that was made, but at the same time, Obama was backed into a corner and he did what he had to. People can say that he isn't decisive enough, but remember the Bin Laden raid. Obama made a gutsy decision and this is how things are done when you don't have to go up against Teabaggers and other nuts. The country didn't default, and Obama has enough time to repair any damage to his reputation. It seems to be true that nobody came out of this looking good. In the end, the Republican party looks like the one's who were obstructing the political process, and come election day, I think people will remember that. It has been said that the political system was hijacked, and it was, by the Republcian party. It will take a long time to repair the damage. I voted for Obama the last time and I will again. At least he is willing to compromise, even if it may not look good to everybody. He did what was ultimately best for the American people. A default would have been a disaster.

  2. It sounds like there were no winners in this, only losers...This is a very complicated deal and it doesn't make a lot of sense. If the President doesn't have any power to get anything done, what good is our political system anyway?

  3. What we need right now is more jobs. Don't the Republicans have economic advisors. This is crazy shit.

  4. John Boehner, Mitch McConnell and other Republicans stuck to the core values of the party and should be commended. The govermnent has so much excess spending that their way is the only logical one. The GOP won big on this deal and the country will be better for it. Obama is losing in every poll now and any one of the candidates would beat him if the election were held now. I don't think his approval ratings will get better, only worse, so he has little chance in 2012. Voters look at the economy, and this is bad and getting worse.

  5. Anybody who thinks the Republicans came out ahead in this thing is nuts.

  6. The biggest problem with the deal are not the actual contents. Those things will work out over time. The main problem is that extortion was useed as a tool in the political process, and that is a bad precedent. If the constant gridlocck in the Washington isn't bad enough already, the ability of a destructive Tea Party minority to impose it's will on the rest of government sets a dangerous example that we will have to live with for a long time.

  7. Because of the Tea Party, the Republicans have no chance in 2012. The majority of voters are disgusted with them and they have divided the Republican party, causing major problems for legitimate candidates, who have too many problems to begin with.

    Obama's approval ratings are low, but I don't think any of the current GOP candidates could beat him in a general election. With the debt ceiling out of the way, he can focus on the issues that really matter.

    Although the deal wasn't perfect, Obama was smart enough to leave some room to work through these problems. Obviously, if he is re-elected, he can address the Bush tax cuts and other Democratic issues.

    The debt deal was bad, but it left room to somehow force the issue with this so-called super committee, and eventually, the soaring national debt will leave no room for arguing about raising taxes. Obviously we need to cut spending, but with no new taxes, it is unsustainable. At some point in the future, this will become evident, and even the Tea Party won't be able to prevent the inevitable.

  8. I'm mad as hell and I'm not going to take it anymore...

  9. It goes from bad to worse...The Dow Jones goes down over 500 points today. What's next?

  10. The Congress goes on resess for a month. They get paid for this vacation while the fallout from the disastous debt negotiations hits America.

  11. We can't have economic recovery if the political leaders can't make reasonable compromises. Maybe if they could only run for one term, politicians wouldn't be thinking about the next election and would do what's right for the country.

  12. S&P downgrades U.S. credit rating as Dow Jones continues to fall. The debt deal was so bad, maybe Obama should have held out for more, even if it meant a default. We were downgraded anyway.