Debt Deal a Satan Sandwich?
by Paul Springer
With the Aug. 2 default deadline looming, U.S. lawmakers are finally getting close to a deal to raise the national debt ceiling.
And what a deal. It’s being referred to as a compromise, but an agreement has to have substance to effect a compromise. Still, Sen. Claire McCaskill, D-MO, told NPR that she is “ecstatic about compromise.”
The deal is not so much a compromise, but rather a fairly complicated acknowledgment of a refusal to compromise — and doing it in a way that won’t bring about a default right now.
However, what it exactly will bring about is uncertain. The big elements are no tax increases, $900 billion in budget cuts, and another $1.5 trillion in tax cuts to be named later from sources that could include Medicare.
Imagine this scenario from the point of an investor. You’re thinking of putting money into an entity that’s going to straighten out its balance sheet… later… with $1.5 trillion in cuts… in something or other, it’s not quite sure yet.
The world is looking at this as an investor, and it’s not liking what it sees.
Markets reacted uneasily to news of the deal, according to a report from The Guardian that says the arrangement will probably see the end of the AAA rating on U.S. debt. Nobody wants more taxes, but knocking $2 trillion off the books would seem to create an ungodly vacuum in the absence of cash inflows. It seems likely that ongoing problems with unemployment will keep personal income tax revenues down, while increasing numbers of jobless and homeless people will compete for services that are being slashed.
Meanwhile, analysis from The Washington Post delineates five ways the bipartisan debt commission might whittle away at both Medicaid and Medicare.
In seemingly unrelated news today, it became known that Obama’s healthcare regime will require health insurers to provide women’s wellness and contraceptives at no cost.
This development highlights the unreality of the debt agreement – let’s mandate free stuff even as we agree to chop $1.5 trillion in mystery costs.
The current deal, which seemed to be faltering ahead of a crucial vote Monday afternoon, will get us through tomorrow. In reality, the problems that proved insurmountable have just been shoved down the calendar for a bipartisan committee to attack in coming months. Just imagine the pork barrel politics and partisan games that will go on then, behind closed doors and out of the media spotlight. Gladiatorial contests will seem more civil by comparison.
Economist Paul Krugman blasted the deal in The New York Times:
It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.
While it comes as no surprise that spend-happy Krugman is critical of reduced outlays, the response at the other end of the spectrum is equally chilling. Republicans, ranging from Mitt Romoney and Tim Pawlenty to Michelle Bachman, are claiming the deal doesn’t go far enough, according to The Wall Street Journal.
In terms of actually reaching an economic compromise, the current plan is just scary – especially when viewed from a bit farther back. Seen from across the Atlantic, the “compromise” is just causing further rifts in the Democratic party. Democratic critiques of the proposal have been aired in the U.S., but the harshness of the sentiments come out a lot more clearly in a report from The Telegraph.
“On the surface it looks like a Satan sandwich,” Representative Emanuel Cleaver, D-MO, told the paper.
Russian Prime Minister Putin called the U.S. a “parasite” on the global economy and told the media that the plan is “not that great overall, because it simply delayed the adoption of a more systemic solution,” The Australian says.
Krugman and others in the media argue with some force that while bipartisan politics drove the messy argument leading up to the deal, the real problem is simply that the president allowed himself to get played in a big way by dodging the debt ceiling and taxation issues last year.
From the International Business Times:
It’s true that Democrats would have faced public ire in 2010 by raising the ceiling. Republicans had made the issue a lightning rod in mid-term elections and beyond, despite the fact that they had no better solution. There was just one option all along — raising it — but Obama and the Democrats didn’t want to address it in late 2010 because they wanted to pass the buck of responsibility.
They effectively did just that, thrusting upon this nation one great embarrassing mess.
Sadly, that buck will likely be worth less tomorrow regardless of how the current compromise proposal pans out today.
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