Beyond that it is hard to see anything very positive about a deal in which President Obama finally persuaded the Republicans to accept a Republican plan.
The debt deal will hurt the poorest Americans, convinced by Fox and the Tea Party to act against their own welfare
Senate Republicans are circulating a useful flow chart laying out the various paths the debt-ceiling deal could lead us down.
• The maximum the debt ceiling can be raised is $2.4 trillion (if the committee has enacted at least $1.5 trillion in savings or if a BBA has been sent to the states). The minimum the debt ceiling can be raised is $2.1 trillion (if the joint committee fails to meet its target). In both circumstances, there would be dollar-for-dollar cuts coupled with the debt ceiling increase.
• The trigger does not allow for increased revenue. The trigger can only result in spending cuts through caps and sequesters, not tax increases.
• The sequester is designed to dig deep enough into programs cherished by both parties that the joint committee would have a significant incentive to succeed.
• Because of CBO scoring conventions, the committee would not be able to achieve deficit reduction through individual rate increases.
• If the committee fails, then the total debt limit increase is capped at $2.1 trillion, which raises the prospect of having to raise it again before the election (depending on the health of the economy).
• As a practical matter, if the full amount of the sequester were to be triggered, it would force a debate on what spending cuts could replace amounts being proposed to be sequestered. This debate would occur annually for the next nine years and keep the focus on the issue of spending well past the next election.
he who is hurt will be he who has stalled
For the first time since she was shot on Jan. 8, 2011, Rep. Gabrielle Giffords (D-AZ) has taken her place as a voting member of Congress.
Walking in on her own to a thunderous standing ovation from a full House, Giffords cast an aye vote in favor of the bill raising the debt ceiling that has been Congress’ focus for weeks.
In a statement, Giffords — who has been recuperating since the operation and whose return came as a total surprise to most — said that she felt the need to come back to work as default loomed.
“I had to be here for this vote,” she said. “I could not take the chance that my absence could crash our economy.”
Did you hear about this debt limit thing? Turns out people don’t like it much. Now here’s the news…
Robert Reich hates the debt limit deal.
David Frum hates the debt limit deal.
Paul Krugman hates the debt limit deal.
Steve Benen hates the debt limit deal.
Robert Borosage hates the debt limit deal.
Mittens Romney hates the debt limit deal.
The New York Times editorial board hates the debt limit deal.
Jonathan Chait hates the debt limit deal.
Kevin Drum hates the debt limit deal.
John Bolton hates the debt limit deal.
Rep. Bernie Sanders hates the debt limit deal.
Erick Erickson hates the debt limit deal.
Dean Baker hates the debt limit deal.
Finally, Rep. Emanuel Cleaver hates the debt limit deal.
This may be the least popular piece of legislation to move through congress in your lifetime. What a dog.
Video of Rep. Gabrielle Gifford’s return to vote today. This was her first vote since being shot earlier this year. It was beautiful to see her return to the US House floor.
Heard about this on NPR as I was driving home from work. I so admire her strength - the work to get to this day must have been excruciating. So very happy for her, her family and her friends in Congress. A rainbow on this cloudy day.
We’ve got a debt deal and it’s just the best thing ever! Check out how super-excited the White House is about the whole thing. If we go to the White House website, we learn that it’s a “Win for the Economy and Budget Discipline,” that the deal “Removes Cloud of Uncertainty,” and that the whole thing’s a trip through Bipartisan Happy-Land, where gumdrops grow and sugarplum trees and everything is made wonderful by the magical power of Centrism. Yay!
Of course, if we talk to Mean Old Mister Knows-What-the-Hell-He’s-Talking-About, then the magic seems to evaporate.Crooks and Liars:
Nobel Prize winning economist Paul Krugman warned Sunday that proposed spending cuts in a deal to raise the nation’s debt ceiling would end up hurting the economy.
“From the perspective of a rational person, we shouldn’t even be talking about spending cuts at all now,” Krugman told ABC’s Christiane Amanpour. “We have nine percent unemployment. These spending cuts are going to worsen unemployment… If you have a situation in which you are permanently going to raise the unemployment rate — which is what this is going to do — that’s actually going to reduce future revenues.”
“These spending cuts are even going to hurt the long-run fiscal position, let alone cause lots of misery. Then on top of that, we’ve got these budget cuts, which are entirely — basically the Republicans [saying], ‘We’ll blow up the world economy unless you give us exactly what you want’ and the president said, ‘Okay.’ That’s what happened.”
“We’re having a debate in Washington which is all about, ‘Gee, we’re going to make this economy worse, but are we going to make it worse on 90 percent the Republicans’ terms or 100 percent the Republicans’ terms?’” Krugman said. “The answer is 100 percent.”
And Krugman isn’t alone here. CNN Money spoke with Chad Stone, chief economist at the Center on Budget and Policy Priorities, on the impact of the cuts.
“The economic indicators are pretty disturbing in light of the fact that policy is going in the opposite direction of a normal response to an economic slowdown,” he said.
“Conventional mainstream economic analysis says when you have an economy like this one… the thing you do is provide additional monetary and fiscal stimulus,” he explained.
See, it’s all pretty simple. An economic downturn, recession, or depression is caused by a decrease in demand. No one’s buying whatever, so no one’s selling as much whatever, and no one’s hiring to make whatever. If people would start spending again, things would turn around. So what we’re doing is addressing a moment in time when there isn’t enough spending by reducing spending. It’s stupid beyond words.
Worse, this deal ties the hands of government, locking us into this guaranteed failure of a plan for a decade. If it becomes obvious it’s not working, too bad. There’s no changing course. And let’s not even talk about the “super-committee,” which is just the laziest and most transparent attempt by congress to avoid governing since the balanced budget amendment.
By trying to sell this deal as the best thing ever, President Obama is making a tremendous mistake. People like compromise as a concept, but they never like the results. That will be especially true in this case, when employment and demand drops and the economy worsens. Yet the White House is stupidly putting this across as a win and is actually trying to take credit for this economic firebomb. “Not only has the GOP successfully secured its ransom through railing against a deficit problem they’re mostly responsible for,” writes Greg Sargent, “but the president himself is bragging about a deal that may ultimately complicate his reelection chances.”
It didn’t have to be this way and there’s still a slight chance that it won’t. Democrats in the House aren’t extremely pleased with this and there’s still a chance they could derail it. How much of a chance? I don’t know, but my feeling is that it’s slim.
But this would put the president in the position where using the fourteenth amendment to raise the debt ceiling unilaterally would be his only option. Sure, he’s already (also stupidly) ruled that out, but it may be that he has no choice. If that happens, all this bipartisan supply-side economic flateartherism is out the window. The effect would be the same as a “clean bill” that raises the debt limit and does nothing else. Republicans would almost certainly try to impeach the president over it, but they wouldn’t have a legal leg to stand on (what is the high crime or misdemeanor?) and the public wouldn’t support the effort.
But the bottom line is that this isn’t anything the president should pretend to be proud of. This should be an “I lost and the American people lost” sort of message. By trying to sell this crap sandwich to voters, Obama is taking ownership of it. And, beyond the reelection problem he may face because of it, that’s bad news for America’s future.
If this all gets blamed on Obama, then it all gets blamed on Democrats and, when everything starts to fall apart, Republicans will claim that they didn’t go far enough — and a lot of people will believe them. Remember, when a Republican sees that something isn’t working, their impulse is to do more of it. So we wind up with a GOP president who takes all these losing economic strategies and cranks them up to eleven. Unemployment rises further, demand drops farther, and the nation slips deeper into what would almost become a permanent recession, where all of these problems become the “new normal” because it goes against Sacred Republican Ideology to do anything that would address them.
That’s not pessimism, that’s realism. And it’s also realistic to say that the president is making a tremendous mistake in taking credit for this. When a terrorist has put a plane into a tailspin, you don’t get on the PA and brag about being the pilot.
There is no bright side to any of this. We’re standing at the brink of stupidity and are preparing to jump in with both feet. If the president were half as smart as everyone gives him credit for, the least he would do would be to act a little less enthusiastic about it.
I’ve been trying to figure out the “triggers” designed to force Congress to act on SuperCongress recommendations and I think Jakke might be mistaken about this: “If Congress didn’t adopt all the super panel recommendations, they’d have to send a balanced budget amendment to the states for ratification.” That’s what it says on slide 5 of Boehner’s presentation, but it’s countermanded by slide 7, which notes that automatic sequestration would allow the President to raise the debt ceiling by an additional $1.2T. My understanding:
- Initial debt ceiling hike is $900 billion, which gets us to February.
- A Joint Committee can recommend cuts of $1.5T+. If the recommendations are adopted, the debt ceiling is raised by an additional $1.5T.
- If the Joint Committee is deadlocked or the recommended cuts are not adopted, the House and Senate can pass the Balanced Buged Amendment (not merely consider it, but pass it, and send it to the states for ratification), in which case the debt ceiling is raised by an additional $1.5T. Given the balance of power in state legislatures, this is not a viable option.
- If neither Joint Committee recommendations nor the BBA are adopted, automatic sequestration of $1.2T (or the difference between adopted Joint Committee recommendations and $1.2T) takes place. The debt ceiling is then raised by 1.2T.
So it seems the second tranche of debt ceiling relief will be either $1.5T (in case of Joint Commission adoption or BBA passage) or $1.2T (in case of sequestration). I may be wrong.
You can read about it here, if you’re so inclined. It’s a big messy compromise with massive cuts and a two-stage debt ceiling hike and a cost-cutting super panel and triggers for huge spending cuts and a balanced budget amendment to the US Constitution. (I’m actually not sure that a deal that is to the right of the Republicans’ initial bargaining position can be considered a compromise but apparently this is the only thing that both party leaderships could agree on.)
As far as I can tell, there are some really serious problems with this deal from a policy perspective:
- The budget cut triggers. If the super panel’s recommendations weren’t adopted in the spring, then this compromise would trigger massive spending cuts to defense, Medicare, and other big-ticket nondiscretionary areas. This is intended to guarantee Congress would consider the panel’s recommendations seriously. Unfortunately, this basically never works; historically Congress passes new laws to get around politically unpopular cuts. So this attempt to foist the deficit issue off on a distant and separate panel would almost certainly be just as unsuccessful as every other deficit-fighting panel that the US Congress has created in the last few decades.
- The balanced budget amendment. If Congress didn’t adopt all the super panel recommendations, they’d have to send a balanced budget amendment to the states for ratification. You’d probably think this has no chance of passing, as it would absolutely devastate the American federal government’s ability to fight wars or recessions or natural disasters, but 74% of American adults polled last week supported such an amendment. That’s a higher proportion than basically any other policy proposal - so this is actually something that states would likely consider and debate, and some would ratify, and it’s something that would be a big part of political discourse in 2012 campaigning. This would be massively suboptimal.
- The US Treasury credit rating. This new deal might not be sufficient to prevent a downgrade of US credit by the big credit rating agencies. Specifically, since the deal (not including the panel recommendations) doesn’t raise revenue and doesn’t cut entitlement spending, and the process for raising the debt ceiling hasn’t changed, it’s relatively likely that at least S&P will downgrade the reliability of US government debt - because bondholders won’t be guaranteed that this exact same thing won’t happen again in the future. This would raise government borrowing costs by around $100 billion a year.
Despite all these problems, I’m going to say the odds that this passes are about 80%, because the alternative is seriously suboptimal. The most likely failure point would be in the House, where the Tea Party types are going to vote against anything and leftist Democrats probably won’t want to be on record supporting this proposal. A filibuster in the Senate is possible, I guess, although that would be really effing malicious. (Or a personal hold, although I’m not sure if that would even be respected in this situation.)
If this passes, I’m guessing markets will gain a couple hundred points right away, and then (as real economists have noted) the US will see a sharp slowdown in growth and rise in unemployment as the cuts are implemented. Most likely the panel’s recommendations will be somehow circumvented in the spring, and then things will go back to the status quo until the next debt ceiling fight.
If this doesn’t pass then the debt ceiling doesn’t get raised in time and the US Treasury runs out of cash. From there, things would go really poorly. I’m not sure if it would be like TARP, where Congress votes for something really unpopular in the face of market panic - there might need to be more negotiations, and I’m really not sure what that would look like in the context of government shutdown.
The administration would no doubt blame this judgment on the steady stream of miserable economic news. But it should save some of the blame for its own political approach. Ever since the midterms, the White House’s tactics have consistently maximized President Obama’s short-term advantage while diminishing his overall authority. Call it the “too clever by half” presidency: the administration’s maneuvering keeps working out as planned, but Obama’s position keeps eroding.
The same pattern has played out in the debt ceiling debate. Instead of drawing clear lines and putting forward detailed proposals, the president has played Mr. Compromise — ceding ground to Republicans here, sermonizing about Tea Party intransigence and Washington gridlock there, and fleshing out his preferred approach reluctantly, if at all.
The White House no doubt figured that this negotiating strategy would either lead to a bipartisan grand bargain or else expose Republican extremism — or better still, do both. And again, the strategy is arguably working. Americans were given a glimpse of right-wing populism’s reckless side last week, and the final deal will probably let the president burnish his centrist credentials just in time for 2012.
But winning a debate on points isn’t a substitute for looking like a leader. It’s one thing to bemoan politics-as-usual when you’re running for the White House. It’s quite another to publicly throw up your hands over our “dysfunctional government” when you’re the man the voters put in charge of it.
In fairness, the president’s passive-aggressive approach is a bipartisan affliction. The ostensible front-runner for the Republican nomination, Mitt Romney, took a deliberately hazy position on last week’s crucial House debate, preferring to flunk a test of leadership rather than risk alienating either side. (The Washington Examiner’s Tim Carney quipped that “if you took Obama’s plan and Romney’s plan, and just met in the middle, you’d be in the middle of nowhere.”)
This leaves Americans to contemplate two possibilities more alarming than debt-ceiling brinkmanship. First, that we’re living through yet another failed presidency. And second, that there’s nobody waiting in the wings who’s up to the task either.
In the end, President Obama had to admit surrender. He tried to put a bold face on it, but there’s no other way to interpret his remarks to the nation announcing that Congressional leaders had cut a deal to raise the debt ceiling.
The details of the deal are stark: at least $2.5 trillion in spending cuts over the next two years, a two-stage approach to raising the debt ceiling, and a new committee to recommend further cuts to entitlement programs, along with huge automatic spending cuts if Congress fails to institute that plan. As described, the deal is a major victory for Republicans that will further embolden them over the next 18 months, and may mortally wound Obama’s chances of reelection.
The president told the nation that after ten years the United States would have “the lowest level of annual domestic spending since Dwight Eisenhower was President.” He said this as if it was something to be proud of. The truth is, we are a far different nation today than we were in the 1950s. We have millions more citizens, and are undergoing a major demographic shift as the Baby Boomer generation ages. With health care costs continuing to rise, the squeeze will be on. People will suffer.
The president stated that “I’ve said from the beginning that the ultimate solution to our deficit problem must be balanced.” And yes, Obama has long maintained that revenue increases that would partially balance out any cuts to entitlement programs must be part of any deal. But there are no revenue increases in this deal. And it is surely a pipe dream to imagine that Democrats will be able to include any new revenue increases in further negotiations. After what we’ve seen so far, first in the government shutdown drama and now in the debt ceiling fight — when Republicans hold firm, Democrats give in. The pattern has been set.
Over the last few months, the president also told the American people, again and again, that he wanted a hike in the debt ceiling that would extend to 2013. He wanted, justifiably, to avoid another hostage situation that would bring normal government business to a halt and distract us from more pressing priorities. But the deal he has agreed to ensures that we will be fighting this same battle all over again next year, in the middle of a campaign season. From what we know of the deal, it doesn’t sound like Republicans will be able to hold the debt ceiling hostage 2012 in exactly the same fashion as they did this year — the new plan appears to incorporate Senator Mitch McConnell’s “vote of disapproval” gimmick for the next stage — but the triggers that will enforce automatic spending cuts if Congress fails to cut entitlements make that point moot. The gun is still to White House’s head. Medicare will be on a bipartisan chopping block.
The new deal, so far as had been described on Sunday, also included no measures to stimulate an economy that may be sliding back into recession. Obama claimed that “We also made sure that these cuts wouldn’t happen so abruptly that they’d be a drag on a fragile economy,” but there will almost certainly be some reductions in spending that kick in during the next fiscal year that will pile dangerously high on top of the cuts already instituted this year. If a double-dip recession is looming, these cuts will further constrict economic growth.
If one wished to give the president the benefit of the doubt, one could argue that maybe there was nothing he could have done to get a better deal. House Republicans were willing to push the nation into default — and that’s a scenario no sane leader could responsibly endorse. Obama couldn’t credibly threaten a veto of any legislation that would reach his desk because Obama ultimately would not and could not voluntarily choose to default on the nation’s obligations. Obama had to choose between an awful deal or an outright catastrophe. There’s no way to come out of that jam smelling of roses.
But he didn’t need to try to sell this resolution as some sort of “compromise.” The president said it was not “the deal I would have preferred.” He should have been stronger. He should have said it’s a bad deal that does not address the pressing needs of the nation, and sets in stone cuts in entitlements that will savage an aging population faced by spiraling health care costs. And then he should have acknowledged that he still had to sign it, because the alternative would have ensured a nearly immediate slide into recession and the strong possibility of a global financial shock.
All in all, the weekend’s events represent a smashing victory for the Tea Party and a crushing defeat for Democrats — and more of the same coming down the pike. But at least Congress will be able to recess on time next week. The deal — and the damage — is done.
What if the House GOP still cannot take yes for an answer? PM Carpenter wonders:
Here’s a fascinating possibility. Through a coalition of conservative Democrats and giddy Republicans, the GOP’s extortion of course sails through the Senate. Yet the House Tea Party Caucus (who all along have insisted they’ll vote against anyincrease in the debt ceiling) votes in negative alignment with infuriated House Democrats, thereby constituting the death of the deal. Whereupon the GOP, given its far superior messaging skills, delightedly relates to the American electorate that it was Congressional Democrats who precipitated what would then be a materialized default.
Things cannot get any weirder than they are — and at this grotesque point, no speculation is unthinkable. American politics is now defined only by unrestrained lunacy.
What if the House Dems revolt in greater numbers than now imagined? Thomas Laneconsiders that possibility as well.
Anyone who characterizes the deal between the President, Democratic, and Republican leaders as a victory for the American people over partisanship understands neither economics nor politics.
The deal does not raise taxes on America’s wealthy and most fortunate — who are now taking home a larger share of total income and wealth, and whose tax rates are already lower than they have been, in eighty years. Yet it puts the nation’s most important safety nets and public investments on the chopping block.
It also hobbles the capacity of the government to respond to the jobs and growth crisis. Added to the cuts already underway by state and local governments, the deal’s spending cuts increase the odds of a double-dip recession. And the deal strengthens the political hand of the radical right.
Yes, the deal is preferable to the unfolding economic catastrophe of a default on the debt of the U.S. government. The outrage and the shame is it has come to this choice.
More than a year ago, the President could have conditioned his agreement to extend the Bush tax cuts beyond 2010 on Republicans’ agreement not to link a vote on the debt ceiling to the budget deficit. But he did not.
Many months ago, when Republicans first demanded spending cuts and no tax increases as a condition for raising the debt ceiling, the President could have blown their cover. He could have shown the American people why this demand had nothing to do with deficit reduction but everything to do with the GOP’s ideological fixation on shrinking the size of the government — thereby imperiling Medicare, Social Security, education, infrastructure, and everything else Americans depend on. But he did not.
And through it all the President could have explained to Americans that the biggest economic challenge we face is restoring jobs and wages and economic growth, that spending cuts in the next few years will slow the economy even further, and therefore that the Republicans’ demands threaten us all. Again, he did not.
The radical right has now won a huge tactical and strategic victory. Democrats and the White House have proven they have little by way of tactics or strategy.
By putting Medicare and Social Security on the block, they have made it more difficult for Democrats in the upcoming 2012 election cycle to blame Republicans for doing so.
By embracing deficit reduction as their apparent goal – claiming only that they’d seek to do it differently than the GOP – Democrats and the White House now seemingly agree with the GOP that the budget deficit is the biggest obstacle to the nation’s future prosperity.
The budget deficit is not the biggest obstacle to our prosperity. Lack of jobs and growth is. And the largest threat to our democracy is the emergence of a radical right capable of getting most of the ransom it demands.