Mutually assured destruction: America's Debt Ceiling

It is a path they have been heading for years now, in fact decades. Now with downgraded ratings of sovereign debt of USA that nation is headed faster on that path of destruction. For my memory in future I am copy pasting article from The Economist.

The debt-ceiling deal

Mutually assured destruction

Aug 1st 2011, 15:12 by E.G. | AUSTIN

IT'S nice to start a week with news that Congressional leaders, so often criticised for senseless partisanship and saber-rattling, have come together to craft a thoughtful plan that will address a major problem facing America and, perhaps, the entire world. Or it would be nice, I imagine. This morning merely brings us news that Congress has cobbled together a deal to raise the debt ceiling in advance of tomorrow's deadline. Assuming it passes the House, the debt ceiling will be raised by $900 billion right away, with the borrowing offset by $1 trillion in cuts in discretionary spending over the next ten years—no new revenues, in accordance with the Republicans' demands. It also authorises Barack Obama to raise the debt ceiling by an additional $1.2 trillion later, which will allow the Treasury to pay America's bills into 2013, a priority for the president.

In the interim (by the end of the year) a bipartisan commission will be tasked with identifying an additional $1.5 trillion in "deficit reduction". If the commission cannot agree on a plan, their stalemate will automatically trigger some $1.2 trillion in cuts: largely to defence, but also to key non-defence programmes (with Social Security and Medicaid protected). The prospect of those cuts is meant to be so unpleasant as to force legislators to cooperate; and if they refuse, at least they won't take the global economy down with them.

The White House says the commission's discussions will include "tax reform", though John Boehner, in selling the plan to his Republican caucus, has focused only on more cuts. The expiration of the Bush tax cuts, scheduled for the end of next year, will loom over the talks. Their expiration is assumed as part of the CBO's baseline budget projection, so allowing them to expire cannot be counted as part of the $1.5 trillion in further savings. But the White House has indicated that the cuts will be used as "a motivational thing"—that is, if Republicans refuse to find alternative revenue streams, Mr Obama will veto legislation to extend the tax cuts.

The plan inspires no new confidence in our political leaders, but it is relatively clever. It's not ideal to galvanise cooperation by invoking the prospect of mutually assured destruction, but it may just work in this case.

The process that led to the deal may prove more important. Some believe the debt-ceiling saga will have emboldened rogue actors, in this case Republicans, to think that they can hijack the policy process. "By demonstrating that raw extortion works and carries no political cost," writes Paul Krugman, "It will take America a long way down the road to banana-republic status." The saga has certainly added an extra level of toxicity to America's already acidic political discourse. But the political costs have yet to be assessed; Republicans might get their come-uppance. In the meantime, party leaders must move on. Both sides believe themselves to be aggrieved, and dwelling on it will only allow the corrosion to continue.

http://www.economist.com/blogs/democracyinamerica/2011/08/debt-ceiling-deal?fsrc=scn/tw/te/bl/mutuallyassureddestruction

Some Comments from Readers:

The only winners in this deal are the rich. Plain and simple. They won't be touched by the severe cuts to government assistance many are counting on today just to survive. And they know that in the long-term the only way to keep their taxes from rising is to make these severe cuts now. Disgusting.

 "Both sides believe themselves to be aggrieved…"

Pretty much the traditional definition of a compromise, and yet it's very hard to view this as such. In a real compromise, both the decade-long rise in spending and decade-long fall in revenue would have been addressed. This agreement only tackles one side of the problem without anything more than vague promises toward looking at thinking about dealing with the other side. Now that the Repbulicans have successfully field-tested this strategy, what makes anyone imagine they'll be more flexible about revenue enhancements in the future?

So the president got what he wanted. Congratulations Mr. Obama. The republicans, led by RINOs, surrendered as expected. Surrender of course wasn't in doubt: just merely the terms.

- Obama gets $2.1 Trillion of more spending.
- The commission will be composed of both Democrats and Repubs. Who said the Dems won't demand taxes down the road- why would they change their minds on this?
- The money promised to be cut is almost inconsequential. The budget and the government will continue to increase in size.
- Considering the cuts are in the future, but congress can only legislate in the present, the cuts are imaginary anyways.
- The republicans run the house and (until the latest collapse) will likely win the senate next election. Why would the commission be equally made of both parties.

It's a bum deal designed to buttress the ruling class. Feels more like the Missouri Compromise than anything else. The credit rating of the US Government will still be penalized and after Obama spends the $2.1 Trillion the government will be in an even more precarious debt situation then right now.

I understand Obama- he wants to take down the country. I don't understand Boehner's and Mitchell's complicity in this.