The Debt Deal that Wasn’t!

GAO Chart Forecast Debt % to GDP

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After all the headlines and wailing as the US marched like lemmings to the cliff over deficit spending, the last minute debt deal was passed off as a tough bargain that both sides hate.  Fitch and Moody’s reaffirmed the AAA credit rating and Congress went on to other business proud of its accomplishment.

After the adrenalin dissipated we’re learning more about the ‘real deal’ adopted—it’s not pretty.

  1. The $917 billion in current year spending cuts to satisfy Republicans aren’t really spending ‘caps’ not spending cuts. It means that Congress agreed to modestly reduce the amount of the increase in debt ceiling they actually will spend to an ADDITIONAL $917 billion but even these limits are spread over 10 years and back loaded.  The Congressional Budget Office (CBO) estimates that $9.5 trillion in new debt will be needed 10 years to cover the spending expected and the net result of these “cuts” will be $7.1 trillion MORE DEBT by 2021.  The Bottom Line:  Only about $25 billion in actual cuts will be made is 2012 and $47 billion in 2013.  This is rounding error in the Federal budget.
  2. By Thanksgiving 2011 a Joint Committee of Congress is supposed to propose a second round of ‘cuts’ totaling $1.2 to $1.5 trillion to also be effective over ten years. If Congress fails to act then automatic across the broad cuts are to go into effect.  But the fine print tells us none of these cuts take effect until at least 2013 and nothing prevents a future Congress—say one safely re-elected—from changing these rules.  The Bottom Line:  This is how we got to $14 trillion in debt. Nothing in this debt deal is changing that or even seriously modifying the pace of deficit spending.

And the only reason the parties agreed to an up or down vote on the balanced budget amendment is that they know there is no prayer of getting the 2/3 vote in each house of Congress to pass it.

There is only one word to describe what has happened —-DISGUSTING!

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