It went down to the wire but after months of negotiations, hangups, walkouts and assorted brinkmanship, a deal has finally been struck to raise America's debt ceiling, thereby averting a catastrophic default on our debt. For those accustomed to All-You-Can-Eat spreads for one low price, and payable with future inches to the waistline, you may want to tighten the belt now and rethink your destination.
The Debt Deal is a big win for deficit hawks. $2.8 Trillion in spending cuts, phased in over 10 years, beginning in 2013. $1 Trillion in cuts agreed to now and another $1.8 Trillion to be determined by a "Super Congress," a committee of 12 lawmakers equally represented by both parties, by Thanksgiving. If this Committee does not come to terms by the day we carve our Turkeys, automatic, across the board spending cuts will be triggered, effecting military and domestic spending evenly, sparing Social Security, Medicare and Medicaid but NOT Medicare providers. Seniors better hope an agreement is reached. Without any entitlement reform in this Bill, including a much needed Medicare "fee for outcome" reform, lower provider reimbursement will result in providers dumping Medicare beneficiaries.
The Deal is a very disappointing for anyone interested in Reforms or closing Corporate loopholes. There are none! It's heartbreaking for everyone who fervently believes that very wealthy individuals, who have profited immensely from the Bush tax cuts, should be part of any debt solution. They aren't and neither are big Corporations, receiving tax subsidies, which 80% of the Country opposes!
For President Obama, it's a mixed bag. The urgent matter of the United States meeting its debt obligations of the past is resolved, and won't have to be revisited until after 2012, the same time the cuts begin. He can run for re-election without this monkey on his back, incurring none of the negative blow-back from the effects of spending cuts which haven't yet materialized.
On the flip side, Obama got none of the revenue raisers or entitlement reforms he and his supporters desperately wanted. If he's re-elected, those revenue raisers could come in spades on New Year's Day, 2013, by allowing the Bush Tax Cuts to expire on New Year's Eve 2012, a move that would go much further in reducing the Deficit than the cuts included in the Debt Ceiling bill. If he's defeated by any of the prospective opponents, he will have a squandered the opportunity to deal with the biggest driver of our debt over the last decade.
The markets should react well to the deal in the short term. We've averted a crisis and don't have to return to the squabbling in 3, 6 or 9 months. Unfortunately, we also don't have entitlement reforms or a Jobs bill. The economy will continue to twist and turn without both. Unemployment is now a deficit driver as the Government tallies fewer receipts for the many services it provides. It's also causing more job losses as demand for products and services in the private sector contracts.
Will this belt tightening alone choke off Economic growth? I believe it will and hoping beyond hope I'm wrong.
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