Last week I promised to assess the final legislation to deal with the “debt ceiling” crisis. The bill, knows as the Budget Control Act of 2011, is a joke. It allows the country to borrow another $2 trillion right away until early 2013. Because congress won’t formally deal with the debt issue again until after the 2012 election, Obama will find it much easier to win re-election than would have been the case if congress was debating the debt ceiling during the election campaign. Handing Obama a free pass until after the 2012 election was a major political blunder for the Republicans. Truth be known, delaying congressional debate on the debt issues was probably the only thing that Obama cared about in this entire debacle. For sure it was the only thing he understood.
The debt deal calls for $2.4 trillion in cuts over the next ten years. That’s $240 billion a year; a drop in the bucket compared to the $400 billion in annual spending that would have had to be cut to avoid downgrading of US debt. In the opinion of this economist, annual spending should ideally have been cut $600 billion each and every year for the next ten years if the government was to achieve spending at a sustainable 20% of GDP.
Of course, most of the cuts are back-loaded; to happen in the last five years of the plan. That’s plenty of time for Barack Obama and other politicians currently in office to depart, allowing new politicians to default on a budget deal that they didn’t vote on. Americans are also being asked to trust a committee of twelve congressional representatives to determine how $1.5 trillion of the announced 2.4 trillion will be cut. We’ve been through this before; does anybody remember the National Commission on Fiscal Responsibility and Reform? That commission came up with real recommendations for cutting spending in January of 2011. Why, then, do we need the gang of 12 to re-examine this? I’ll tell you why….delay, delay, and delay
In a July 14th press release, Standard & Poor’s stated: “If Congress and the Administration reach an agreement of about $4 trillion, and if we…conclude that such an agreement would be enacted and maintained throughout the decade, we could…affirm the ‘AAA’ long-term rating and A-1+ short-term ratings on the U.S. ”
Having been bullied by Barney Frank and various congressmen to inflate the grading on real estate junk debt several years ago, and despite jawboning and argumentative posturing of the Obama administration over the past two days, Standard and Poors finally decided to come clean by downgrading US bonds on Friday evening after the markets closed. Obviously S&P felt that the magnitude of the proposed spending cuts were too low and that the Federal Government could not be counted on to “enact and maintain” the cuts.
Nothing has changed much, and nothing will change for the better until we elect more senators and representatives who are to tell the American people the truth; namely that we’ve over-promised, there will never be enough money to fund medicare, and it is time to balance the federal budget.