Debt Deal Reached
Paulie Brading
The threat of default is over all the way into 2013. The global markets are up this morning on the news that a deal has been struck. Gene Sperling, the director of the National Economic Council said "The president didn't give one inch. The president made clear, while he was willing to compromise, he was not willing to allow anyone to hold our economy or government hostage by using the threat of default."
We have a crisis averted. Everyone compromised. Both sides got what they wanted. Both sides didn't get what they wanted. The Republicans have angry Tea Party members of the House. Establishment conservatives fear the schism in their party will effect the Republican presidential nominating process.
I wonder if the Tea Party's strategy will have more or less influence in future debates.
Your take.
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7:53 a.m.
Aug 1, '11
So far, I've seen few details of the deal ~ and it still has to pass through Congress ~ but based on what I have seen, I do not see that both sides compromised. It appears to be very lopsided, in favor of the R's. For my part, I feel like the R's held something hostage again and Pres. Obama caved for the greater good. I hope voters remember this on election day.
8:28 a.m.
Aug 1, '11
What is the sound of no hands clapping?
As The New York Times' editorial board summarized:
"a nearly complete capitulation to the hostage-taking demands of Republican extremists. It will hurt programs for the middle class and poor, and hinder an economic recovery."
9:01 a.m.
Aug 1, '11
Just like the total failure on the health care reform (among other failures) by the Democratic congress made it hard to get people motivated to vote for the Democrats in the last election (and was a big part of the Tea Party victory), this total failure from the Democratic leadership will make it once again hard to get people to vote for Democrats up and down the ballot. After the death of OBL and the Ryan kill-medicare budget, I was thinking that Obama was going to have an easy re-election and great coat tails, but at this point I would not be surprised to see the White House and both houses of congress be in Republican hands in 2013.
1:00 p.m.
Aug 1, '11
Yes, we will lose the election if the attitude is that it was the Democrats that brought us this disaster so why vote.
9:13 a.m.
Aug 1, '11
It will help Obama with swing voters - tho they have short memories - because he is perceived to have worked hard and given up much to get a deal. It will help congressional Republicans because the base got what it wanted and will fire them up and be emboldened by yet another successful hostage-taking. It will hurt congressional Democrats because they weren't players. It will hurt the economy, giving Republicans fodder for 2012, by extending what is already the longest employment recession since the Great Depression -- the Lesser Depression some call this now.
10:24 a.m.
Aug 1, '11
Am I living in a different universe? "The President didn't give an inch?" Truthfully, this is as shameful and humiliating a capitulation as we've seen to date. The thing is the President knows this will torpedo the economy, effectively eliminating the only economic demand left in the system. He knows this is going to devastate the poor and old and the country as a whole, but all other options, the fourteenth or making a real case for Keynesian intervention, would have required arguing from outside of the Republican framework. He simply doesn't have the strength to do so. The undeniable empirical truth is this man does not have the courage of his convictions or they are, alas, not his convictions. So the real conflict falls to us now: Do we start the soul killing process of divorcing our hopes and our perceptions from reality as, respectfully, this author seems to be doing, for the sake of short term damage control (the Republicans can't win the Presidency!)or do we assign our own convictions enough value to stop pretending and start to forge some Progressive response before the President's next political and spiritual cry "Uncle!"?
11:48 a.m.
Aug 1, '11
"The GOP came out of this looking unreasonable--I've been getting E-mail messages from friends saying they are back with the Democrats because the Tea Party is "destroying this country." Nate Silver tweeted last week that local conservative talk radio in Kansas was filled with callers attacking the Tea Party! The Wall Street Journal ran two editorials which called the GOP delusional and "childish." The vaunted GOP message discipline broke down--I read stories all over the "inside baseball" papers here in DC where GOP House members went on the record after the Friday vote wondering out loud if the party had been damaged! I don't know if you noticed, but John Boehner spent last week negotiating with himself. No new proposals came out from the Dem side, but he produced two proposals, one of which he had to pull after he didn't have votes." Written by TPM blogger RW.
12:19 p.m.
Aug 1, '11
I guess it's appropriate to try to find a silver lining, so yes, the Tea/GOP did suffer some self-inflicted wounds. But let's not kid ourselves that any of those political wounds were administered by the President. So we are left, once again, after a prolonged battle for the future of the country with no defining Progressive (Democratic?) vision. No master plan. No solutions. No help for the people. The old, young and poor more vulnerable. No new jobs. No new anything, actually. But we can expect economic demand to wholly dry up, and most ironic of all, almost certainly more debt as growth is strangled and tax revenue dries up. "Winning the Future" starts with winning, and that takes a plan and some guts. All of the political spin out of Washington today still won't be a substitute for either.
12:23 p.m.
Aug 1, '11
The summary above,"Debt deal reached," is the most flagrant and irrational whitewash I have yet seen of Obama's giveaway. As such it's an embarrassment to this site and I recommend that it be taken down immediately.
12:23 p.m.
Aug 1, '11
Anyone who thinks Obama was tough and that the GOP gave up as much in this deal as did the other side is now subject to a new and highly appropriate appelation:
herbal tea-bagger
12:50 p.m.
Aug 1, '11
I think getting close to half the cuts from defense and related security programs is a big deal: a win for progressives. I accepted that the US needed substantial long term budget cut. I just wanted defense and agricultural subsidies to take big hits. They may. I can live with this (as I now understand it, pending details).
1:20 p.m.
Aug 1, '11
David, You are a thoughtful and smart writer, and I ask this question earnestly: This is a post you wrote earlier about, I believe, the same topic. "Yes, it really would debilitate (an understatement, IMHO) the US and global economy. We now have a US economy that is not producing enough jobs because there is not enough private plus public spending (aggregate demand) on goods and services. We should be, short term, borrowing more (at historically low interest rates) to spend more (as infrastructure, research, and human capital investments). Reducing demand still further with these large cuts would be an enormous shock to our economic system. Private demand will not pick up to compensate. Many adjustments would need to be made that would take much time. In thee transition, the collateral damage would overwhelm any possible benefits. We need to deal with our long term deficit problems much more thoughtfully."
So how does your accepting that the "US needed substantial long term budget cut" and seeming support for the President's present surrender square with your clear understanding of what was at stake?
And really, what's your gut call, are you confident going forward with this President negotiating for your interests?
2:11 p.m.
Aug 1, '11
Brian, yes, short term we need more stimulus (as in borrowing more to spend). That was never on the table. I don't think the votes are there (whatever Obama did or does). But this deficit deal is about the long term. Next year has few cuts. That's, IMHO, a small victory and gives the economy some time. It's not the best option, but, as I say, I can live with it. It's not the most thoughtful way to deal with either the short or long term budget issues. But it could be much worse.
Long term, like many, I'm concern more revenues are not now part of this deal. But the significant defense cuts included probably sets up a dynamic choice (especially for Republicans) going forward between those defense cuts and more revenues.
And I agree with Rob Harris: patience, this debate is just getting started.
I am OK with President Obama negotiating for my interests. I don't yet view this deal as a "surrender."
1:23 p.m.
Aug 1, '11
Patience. The deficit ceiling deal this week represents the midpoint of nationwide debate about our financial structure future. I think strategically, it's going to work out well.
The future debt reduction agreement doesn't say future spending reductions. Dem's will propose revenue increases during the next phase in order to reach the target.
During a recession no one advises tax increases. The tax increases that were proposed weren't going to take effect for a couple years anyway. So why force a shut down and default over a tax increase that won't be effective for a year anyway? Instead, tie the proposed increases to the harder, phase two part of the plan.
What the deficit crisis had done is focus lower information voters on the facts and the trade offs. It is part of the necessary educational process. Opinions are moving the D's way now. I think by far the biggest win for the D's was the R's changing their focus from government spending to deficit reduction. The days when they can argue for tax cuts with no regard to the deficit are over. That sucks for them.
So, the debate, during the 2012 election cycle will now be about three financial futures.
The R's can propose cutting another 1.5 billion in spending, and will have to tell us where that will come from.
The Dem's will propose some spending cuts and some revenue increases and will have to tell us who will be paying more in taxes. They can phrase the argument as...we've done the "easy" cuts. Now we get to make trade offs between corporate jet tax breaks and paying for nursing home case.
If there is no agreement, then the automatic cuts take place, and the voters of 2012 can decide on which of the two parties proposals is most acceptable.
The key is going to be pinning the Rep's down on their proposed cuts, and mobilizing a truth squad should (when) they start to misrepresent and mislead the voters about how their cuts effect us all.
2:39 p.m.
Aug 1, '11
There's some great insights/arguments in this post.
1:38 p.m.
Aug 1, '11
"global markets are up this morning"
Dow Jones Industrial Average 12,144 initially rose to 12,282 before slumping at midday to 11,998.
I think Boehner got his $1 of CBO Cuts over 10 years for $1 of debt increase, with no tax increase. But with no balanced budget amendment required nor any other long term fixes to the debt problem, which is kind of disappointing. Also only 2% of the cuts are within the first year ($21 billion), so after the next election those might just be ignored. The “across the board cuts” trigger excludes almost all welfare programs (including Obamacare). There are some cuts to Medicare providers, which will cause more doctors to drop patients, but no cuts to any of the real spending. The 2012 budgetary authority is actually higher than the house passed budget, so extra spending will be added, probably to the two largest no-defense bills which are currently set for the very end of aug (Labor/HHS/Education and Transportation/HUD). Oh and S&P has said that they may downgrade us anyway even with this deal, while moody’s has said they are undecided as well so far.
2:25 p.m.
Aug 1, '11
The lack of a "balance budget amendment" is the only sane thing about this. "Balanced budget" is the rally cry of the supply-side term guys, but in effect it codifies Hayek's simplistic understandings into law, by outlawing Keynsian approaches.
The present macro-economic storm is a perfect illustration of how that's folly. Consumer demand, based on home equity and credit, is gone until the housing market recovers, circa 2015 (at the earliest). There is over $3 trillion sitting on the side-lines. Prime is at Zero. Read that again: Zero. FREE MONEY, and corporations still won't invest with it. Every supply-side remedy has been tried and failed. The "Confidence Fairy" is still MIA. It simply is NOT a lack of access to capital that has stalled the economy, from over taxation or any other made up cause. It's not a supply problem, it's– GASP!- a demand problem.
Is now really the time for us to effectively outlaw demand-side remedies, the only approaches that historically have worked? Government spending is the answer (WWII?). Debt spending, to be clear.
3:25 p.m.
Aug 1, '11
What we need is to get money into the hands of people. Real people, not a handful of multi-billionares. Millions of people buying lightbulbs and toothbrushes and maybe a dinner out every now and then. Millions of TV sets being bought. Millions of plumbers being called to fix millions of leaky pipes.
Every tax break in the universe will not do this. You could pass a law tomorrow saying that all taxes are illegal, and the economy still will be dead.
We need money to the people. Demand drives hiring, not taxes. If we invest in the US, get our people in jobs, get the money flowing, then businesses will start perking up.
Hey, want to know a quick, easy, and nearly painless way to make a quick $70 billion for the federal government? Shave 1% off the military budget. One percent.
Want to know a quick, easy way to not only generate a huge amount of revenue, fix foreign tax loopholes, and send our people back to work? Tariffs.
Of course, neither of my suggestions will ever be adopted. So we'll face this same sillyness right around election time. Again.
3:42 p.m.
Aug 1, '11
I think everyone agrees there are times to borrow. Those are in times of national emergency/disaster and in war. These two exceptions are added to the balanced budget bill. But government spending is always bad for the economy, but a slightly worse economy is the price people are willing to pay for the services that government provides that cannot be provided in the private sector. Having one government job digging a hole and a second one filling it back in doesn’t help the economy. The money those government employees are paid comes from taxing (and harming the economy by at least the price of their wage) or inflating the dollar (a tax on everyone holding a dollar), or borrowing. Even Keynsian don’t believe that increasing taxes helps the economy. Having the government borrow more money in the short term “crowds out” borrowing in the private sector, and in the long term forces our children and grandchildren with paying back our debts, neither of which is a good thing. Every dollar that purchases government treasury bonds could instead be used to buy an American small business bonds or stock and increase the number of jobs and the wages of those jobs.
Every person in America knows that sometimes you need to take out a loan in the short term to pay for something that you need a lot of money for immediately (such as buying a home or car). But long term, the effort should be to pay back those debts, increase our net worth, and make this country better for our children. The problem is our government has been borrowing larger and larger amounts every single year. Putting everything on its credit card that keeps getting maxed out and asking for a higher credit limit.
4:16 p.m.
Aug 1, '11
Maybe you need an example of "one government job digging a hole and a second one filling it back in"?
How about this one closer to home:
As state law puts it: “The Oregon Virtual School District shall provide online courses.”
But after six years and the appropriation of $7.1 million, including another $1.5 million lawmakers just approved for the current biennium, the Oregon Virtual School District has yet to provide a single “course.”
http://www.wweek.com/portland/article-17755-virtual_combat.html
4:23 p.m.
Aug 1, '11
I'm not sure why you assume all government jobs and spending ad no value to the economy. If 5 firemen who make $80,000 a year save a warehouse filled with $3 million in inventory, isn't there a value add to the economic system as a whole? What is the economic activity multiplier when a teacher teaches a kid to read? Is that economic value neutral? What about gov research inventing things that enhance business exponentially like the Internet. is the Internet not contributing to the economy because it was created by government? Government is not the enemy of business, it's necessary for business to even happen. "Necessary" and "always bad for the economy" can't logically co-exist here.
As for the "Crowd out" theory of capital markets, sure, when there's scarcity. But I think you passed over the part about zero interest rate. If businesses won't invest when the money is free, how can government borrowing by crowding it out? And if we are experiencing record low interest rates, isn't this EXACTLY the time to invest in all of the infrastructure we know our kids will need, but will be much, much more expensive for them to fund. Indeed, isn't it the folks who want to waste this opportunity to enjoy these present rates the ones who are "stealing" from the kids?
5:40 p.m.
Aug 1, '11
Absolutely there are cases where the benefits that the government employees make exceed the damage to the economy of their job existing. Fireman, Police, and Teachers, are all examples things that the government must pay for (at least some!), and there is a significant benefit to society that they add, and it is usually worth the cost to the rest of the economy to have them. But these should all be handled at the local government closest to the people they are providing the serve to, where they can decide how much, which kinds, and what to teach. The things the federal government should do are expressly enumerated in the constitution, the things that no individual state can do by itself, such as provide for the national defense. We as a society needs to determine how much damage to our national economy we are willing to have for how strong of a national defense we will have, along with how much for all the other national expenses. But we should pay those costs now, unless there are exceptionally unusual/temporary disasters or wars rather than push those costs off on our children.
The prime interest rate is currently 3.25%, which is low. Why is it this low? Because the Federal Reserve has been inflating our monetary supply through QE1, and QE2, and its other policies setting the federal funds rate. 80% of all Federal Treasury Securities (government bonds) were purchased by the Federal Reserve. But this rate is only for the most credit worthy of people (and banks). There has been a very large “flight to quality”, after the sub-prime mortgage problems, and people with less than stellar credit ratings have seen large increases in the rate they need to pay (if they aren’t denied). The flight to safety is also why the federal treasury rate is so low (and the price of gold is so high), but normal borrowers in the economy are facing much higher rates.
2:15 p.m.
Aug 1, '11
What a difference a few hours make in the markets.
Hullabalo posted a screed from a Tea Party Nation leader on the debt deal.
"Not only does the Tea Party not want any credit for this disaster, we do not want to be a part of it. This plan does nothing to cut spending this year. It does nothing but fund the easy, endless expansion of government. It takes our debt to record crushing levels and it opens the door, through the use of a commission to crushing new taxes.
This is a complete surrender and by early next year, Obama will have his dream of transforming America from a low tax, free market economy, to a high tax, welfare state, socialist economy. And the whole time, the GOP is aiding and abetting the Obama, Pelosi, Reid axis of fiscal evil and committing political suicide at the same time.
We must act."
The process and substance of the debt deal met a short term goal to avoid a global economic crisis.
Now we are talking about the obvious problems and the hidden problems in the details of the deal.
I have thought all along there was a lack of a compelling sense of collective purpose from all sides on the debt ceiling.
We know-it-all bloggers can offer our opinions on any topic. And we do!
3:14 p.m.
Aug 1, '11
My take is similar to a reader over at TPM who stated to Josh Marshall:
Let me get this straight. The President kept revenues on the table, did not touch the sunset provisions in the Bush tax cuts, ensured that military cuts keep the GOP honest, protected Medicare by adding in only provider cuts in the trigger, made the reduction apparently enough to stave off a debt downgrade, got the debt ceiling raised, wounded Boehner by demonstrating to the world that he is controlled by the Tea Party caucus, took out the requirement that a BBA be passed and sent to the states and got the extension through 2012? What exactly is wrong with this deal?
The fact that there are cuts? If people don't like that, why in God's name didn't they turn out to vote and bring back our Congressional majority? Once these nut jobs were in there, it was inevitable that this crap was going to happen. Whether or not it is advisable to cut spending, what exactly was going to stop this from happening? My experience is that the primary factor in all negotiations are the facts on the ground. The complaints center on a ridiculous notion that if the President had only said "no" harder, that these guys would have caved in. This isn't negotiating over who gets the side of the bed near the A/C. This is a complex matter involving 3,000 members and staffers. Negotiations in these situations don't work like this. That's why I'm irked by the constant parade of people comparing the negotiations to movies and card games. These comparisons obscure more than they reveal.
The GOP came out of this looking unreasonable--I've been getting E-mail messages from friends saying they are back with the Democrats because the Tea Party is "destroying this country." Nate Silver tweeted last week that local conservative talk radio in Kansas was filled with callers attacking the Tea Party! The Wall Street Journal ran two editorials which called the GOP delusional and "childish." The vaunted GOP message discipline broke down--I read stories all over the "inside baseball" papers here in DC where GOP House members went on the record after the Friday vote wondering out loud if the party had been damaged! I don't know if you noticed, but John Boehner spent last week negotiating with himself. No new proposals came out from the Dem side, but he produced two proposals, one of which he had to pull after he didn't have votes. A congressional Dem staffer told me his dad, an urban Catholic who voted for Nixon over Kennedy and has always voted Republican suddenly thinks the GOP is out to lunch and supports the President.
4:49 p.m.
Aug 1, '11
Mitchell, this is a good rebuttal, but I don't think people are mad that he's reasonable or that there were cuts.
I think people are upset that the President doesn't ever lay out a vision, a story, a plan or a narrative at the outset for anyone to rally around, instead limiting his range of political motion to the confines of the debate as the Republicans define it for him. He could have made this whole debate about jobs, and how many these cuts and/or default would cost. That's the debate all of the polls show the country wants to hear– but the Republicans wanted to talk about debt, so that's the music we'll all dance to.
It is this seeming lack of any strategy, coupled with a now inexcusable assumption that– this time– Republicans will be more reasonable, that is frustrating folks.
It's come to the point where people won't even take yes as an answer from him because they ALWAYS think they can get more.
12:00 a.m.
Aug 2, '11
from my perspective, this is a decent deal from where we were a week ago. However, I would've rather seen the 14th amendment called into play. Even better though--to see the President control the conversation better. This was a debate on a GOP proposal--that is, cutting spending--and rarely did anyone even bring up the point that this entire conversation is a debate on whether the end result will be moderately conservative or extreme conservative.
I'm glad a moderate option was chosen (rather than an extreme), with some re-assuring defense cuts, but I do believe this whole ordeal could have simply been avoided had the president been able to control the conversation better.
He could've played his cards better.