Deconstructing The Absurdity

What’s the Deal? The good, bad and the ugly!

In Barack Obama, Debt Ceiling, Democratic Party, Republican Party, Tea Party, U.S Congress, U.S House of Representatives, U.S Senate on August 3, 2011 at 10:03 am

Ok! So a home-made disaster just got averted. A family member spread gasoline around the house threatening to light the match UNLESS you agree to buy him his very expensive car. The deal was done and you just bought him the car and he put the matchbox in his pocket. He is sending out the message that, ‘Don’t be too happy. I might think about lighting the match anytime in the future.’

That my friends is exactly how the U.S Congress and president Obama dealt with this home-grown crisis. It is a no brainer. For the GOP there was is better time to debate spending cuts when a Democrat is in the White House. Had it been a Republican, they would have raised the debt ceiling without raising an eyebrow. Rep.John Boehner, speaker was asked by CBS if he would continue to be the speaker of the house. His reply was, “Of course! I got 98% of what I wanted and I’m happy.” 

The house passed the debt ceiling bill 269 – 161. 66 Republicans and 95 Democrats voted against the bill. This bill was forwarded to the senate where it passed 74 – 26. It was sent to the president who immediately signed the bill into a law. The progressive caucus, liberals and democrats are fuming over this debt ceiling compromise and some calling it  a ‘satan sandwich’. Republicans and Democrats alike were not happy with the deal but they had to swallow it like a bitter pill. “I would like to say this bill solves our problems. It doesn’t. It is a solid  first step.”said Representative Jeb Hensarling of Texas (R), a prominent fiscal hawk in the Republican leadership. “The default of the United States is not an option,” said Representative Steny H. Hoyer of Maryland (D). Mr. Hoyer urged lawmakers to vote not as members of either party, but as “Americans concerned about the fiscal posture of their country, about the confidence that people around the world have in the American dollar.”  This debt deal has no mention of any revenue’s which is a major sticking point for most Democrats. Both parties were worried about defections by party members and had briefings to explain the proposal. Vice President Joseph R. Biden Jr., told House and Senate members in separate meetings that the administration had to cut the deal with uncompromising Republicans to avoid a default. Speaker John Boehner met specially with Republicans on the House Armed Services Committee, an important voting bloc whose members were raising alarms about potential spending cuts for the Pentagon.

So where does this bill lead us? Who won and who lost? We have the facts and figures. Let’s dissect it.

This is President Obama’s video explaining the deal.

So the basic facts of the deal are:

  • $1 trillion of cuts over a 10 year period.
  • It guarantees that the debt limit will be hiked by $2.4 trillion.
  • Immediately upon enactment of the plan, the Treasury will be granted $400 billion of new borrowing authority.
  • After that President Obama will be allowed to extend the debt limit by $500 billion, subject to a vote of disapproval by Congress (would need 2/3 of both houses to block).
  • That initial $900 billion of increase in the debt ceiling will be paired with $900 billion of discretionary spending cuts, first identified by the bipartisan working group that had met under Vice President Biden, which will be spread out over 10 years.
  • Obama will later be able to raise the debt limit by $1.5 trillion, subject to a vote of disapproval by Congress.
  • That increase will be paired with the formation of a Congressional committee (being called the Super Congress) of 12 members of Congress (6 from each party) that will be tasked with reducing deficits by a minimum of $1.2 trillion. That reduction can be composed of spending cuts, tax increases or a mixture of both.
  • If the Committee fails to reach $1.2 trillion in deficit reduction, it will trigger an automatic across the board spending cut, half from domestic spending, half from defense spending, of $1.5 trillion.
  • The domestic cuts would come from Medicare providers, but Medicaid and Social Security would be exempted. The enforcement mechanism carves out programs that help the poor and veterans.
  • The domestic cuts would come from Medicare providers, but Medicaid and Social Security would be exempted. The enforcement mechanism carves out programs that help the poor and veterans.
  • If the Committee finds $1.5 trillion or more in savings, the enforcement mechanisms would not be triggered as $1.5 trillion plus the original $900 billion would equal $2.4 trillion, the amount the debt ceiling would be raised under this two-stage plan.
  • If the Committee finds between $1.2 trillion and $1.5 trillion, then the balance will be made up by the corresponding percentage of the enforcement mechanism’s cuts, still in a one-to-one ration.
  • There will be a vote on a balanced budget amendment. It would require a 2/3 majority in Congress. However, it is not likely to pass.

The Goods

The impact of this deal on the economy is mostly favorable for now. The economics team from JP Morgan says that federal fiscal policy will subtract around 1.5% points from GDP growth in 2012. The country would avoid a default and the cuts are big enough for the United States to retain its AAA rating. In fact it’s important to know that the credit agencies will not drop America’s rating. It’s just very simple economics. Any country would want to hold American credit.

Rep. Gabrielle Giffords was in the house. It was a wonderful thing to see her back in office. She got a 10 minute standing ovation from her colleagues with some of them even misty eyed. That, believe it or not is one of the plus points. Giffords voted on ‘Yes’ on the bill. She said, “I had to take this vote. I could not take the chance that my absence could crash the economy.” It was refreshing to see a different ray of hope among utter chaos.

Both parties have some news to be happy. Republicans virtually got everything they wanted. All their criteria’s laid down by John Boehner were met. Perhaps the only thing which the right-wing is not happy about is the amount of cuts, which in their opinion is very less. It’s a haircut, is what they love to call it. Although the  Democrats are not happy, they too get to share some ‘glee’ in this deal. At least they should. After all the time they had to take definitive action, it’s something  they brought upon themselves. The debt ceiling is out of the 2012 discussions and the deal has been struck for a long-term. Social Security, Medicare and Medicaid are off the table.

The Bad:

The biggest ‘bad’ point of this outcome is the creation of the ‘Super Congress’ or the congressional committee which would consist of 6 members from each party. Congress will have to agree and pass the bill this committee comes up with without any questions asked. If, however, this ‘super congress’ cannot come to an agreement then what is being called a trigger would kick in. It would mean automatic cuts across the board ranging from defense to entitlements. These cuts will be large and will be something both the parties would wish to avoid.

There are no revenue’s in the deal. This is the only time in the history that a budget deal has been struck without any revenues making up for that $1 trillion cuts. I’d like you to take a look at this chart below. It shows the spending % and the revenue % under each president of the United States before Barack Obama.

Notice something? Who has more blues than reds? Clinton, Carter and Johnson. All Democratic presidents. Who has more reds than blues? Bush Jr, Bush Sr, Ford and Nixon. All Republican presidents. I’m not trying to make Republicans presidents look bad. My point is this? Spending has been greater all throughout GOP’s life. How do you hold another party accountable when your party have never followed what you’re fighting for. Follow what you preach. Let’s take Clinton for example. Look at the revenue’s. It’s a huge variation. Why? He barely had any wars during his time and so he could focus all his resources at home.

No tax increases. The Republicans got exactly what they wanted. A spending cut deal with absolutely no tax increases. Taxes, as part of the GDP are at a 50 year low.

No impact on the recession. In the near future this deal will not have any impact on the recovery from recession. However, if the dollar value drops along with the United States credit ratings (which the agencies are still speculating), the country will go back into a recession.

The Ugly:

Now it’s time for the worst thing to have come out this debate. Hold on to something. It’s going to be a bumpy ride.

When the deal was done you would expect the markets to come back to its normal state. When congress gives a thumbs up to save the economy, the market reacts the same way, giving a thumbs up. That’s what usually happens. The last time congress voted against saving the economy the markets took a hit and we went into the worst recession. This time however, the congress did vote to save the economy and the markets still tanked. After the senate voted to pass the bill DOW lost 265 points.

The whole concept of the super congress is not setting well with either parties and mostly liberals. If the committee fails to reach a deal which most think would be the case, then the automatic cuts due to take place are going to be devastating for both parties. The ‘Super Congress’ is due to present its deal by Thanksgiving. The whole part of giving a group of people so much of power is unsettling. Specially when this committee will be dealing with everything on the table. As senator Bernie Sanders (I-Vermont) said, “For the committee, everything is on the table.” It becomes even more complex when you hear senate minority leader Mitch McConnel. McConnel told Fox News, “The chances of a tax increase passing with the appointees, speaker Boehner and I are going to put in (the committee), are very low.” With the debate already creating fiction I see a lot of fighting still to come.

The $900 billion worth of cuts come from fragile sectors such as infrastructure, education, clean air, affordable housing etc. The bill doesn’t include unemployment insurance extension and there are no payroll tax cuts.

It doesn’t help the job sector at all. With this deal the Republican side sent out a clear message. Jobs Jobs Jobs? Nope! Sob Sob Sob! 325 million job lost. 43 billion (-0.3%) from the GDP. The already slow economy comes to a screeching halt. 1.8 million fewer jobs in America. That -$241 billion (-0.21%) lost. The negative signifying the country going back into recession. Unemployment is a 9.2% and its only going to get worse as we roll into 2012 and 2013.

And the thing that is going to hut the most. In all these debt negotiations the FAA tax collecting authority has been neglected and now the government agency controlling air traffic is shut down. That means safety workers working without pay and all construction jobs frozen. It’s projected impact on the economy? The FAA shutdown cost American tax payers $30 million a day. 4,000 FAA workers are off work. 90,000 construction jobs at risk. Congress has been granting temporary extensions to the FAA for the past 20 times and now the Republicans have refused to even given the FAA a temporary extension. The FAA shutdown is projected to cost the American government $1.2 billion in revenue from uncollected airline ticket taxes in a quarrel between Senate Democrats and House Republicans who are demanding a $16.5 million cut in rural air service subsidies. Democrats say the subsidies fight is actually a ploy to get them to accept a GOP labor provision in a separate, long-term FAA funding bill passed by the House. Republicans deny that’s the case. Republicans complain that the new rule reverses 75 years of precedent to favor labor unions. Democrats and union officials say the change puts airline and railroad elections under the same democratic rules required for unionizing all other companies. Knowing the fact that air traffic controllers were caught sleeping one the job, I wonder how wise was it, on the part of the U.S congress, to shut down the FAA. The senate almost ready to go into vacation, house already on vacation, the FAA shutdown could go well beyond September. Senate majority leader Harry Reid said, “The House has tried to make this a battle over essential air service,” he says. “It’s not a battle over essential air service. It’s a battle over Delta Airlines, who refuses to allow votes under the new rules that have been passed by the NLRB [National Labor Relations Board].”

So if you’re a person about to travel and looking for someone to blame/ sue incase something happens to you while in an aircraft. You know who to pin the blame on. Delta Airlines!!! I know I will, since I have to fly in the next 17 days. Good luck to all those who are taking a flight soon.

And finally I leave you with a graph which shows the job losses over the last ten years. Job Creation! Something which the American government should start working on looks something like this. This however, was before all this chaos regarding the debt ceiling came up. Before all this happened. THIS is where we were heading.

  1. All will get worse if all of you dont open your eyes …….People are out of work. They have no money….. Damn tax hikes or tax cuts for anyone right now is not the solutions… Nor is helping business with such tax cuts to HIRE……. They will not hire if they are not Producing or SELLING products….. That 450 Billion needs togo to the unemployed and low income as debit cards for housing, furnishings, autos, to be bought by them…THIS WILL STIMULATE THE ECONOMY AND GROWTH. ( With repay loan later when jobs start hiring again those people.)

    • My eyes are wide open man. Tax breaks for those who hire more workers has to be done because the Bush tax cuts made it convenient for corporations to not hire anybody anymore. And a the clinton tax code for the richest of the rich has proven to be a good thing. In a time when companies like Chevron are making record profits it just makes it more needed. People are out of work because for the last decade the government refused to step in and help. There’s no more to that. Government doesn’t have to be present everywhere but sometimes when it comes to the benefit of society, the government HAS to step in. That’s what they are there for; To take care of the country and the people. The government has to invest more in the economy because the private sector will of course not do it. Stop shipping jobs abroad and invest in our own economy than go our nation building across the globe. And honestly, people really don’t need tax cuts for corporate jets and oil companies for one DO NOT need subsidies.

Have an opinion? Share it

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: