The Covenant in the Compromise Plan

On August 1st a sort of grand compromise was achieved that raises the debt ceiling, temporarily averts a catastrophic debt default and delays but does not prevent a credit downgrade of the U.S. federal government.

Who are the winners and who are the losers? What exactly is in the final agreement? Who got what? Are we wrong to focus on debt reduction?

President Barack Obama

Speaker Boehner: Official Congressional Portrait

Speaker John Boehner

What Did We Gain From The Compromise?

On August 2nd 2011, the day after the compromise was signed into law, $238 billion of the $917 billion that the debt-ceiling got immediately raised was gobbled up in debt accumulated since last May 16th. That only leaves  $639 billion left to last until January 15, 2012.

Between May 1st 2010 and May 1st 2011 the national debt grew an average of $3.67 billion/day. If things remain as they are then we have 174 days until the remaining $639 billion is eaten up by federal government overspending.

Fact and Fiction

By now you’ve no doubt heard and read a raft of misinformation from both the left and the right about the deal reached between the President and congressional Republicans last weekend.

It was another one of those dramatic 11th hour kluge agreements that our dysfunctional government appears incompetent to avoid anymore.

Did Reid or Boehner win?

Democrats who grouse that the President caved into Republicans are right.

Not that it matters, but Harry Reid and Senate Democrats were pretty much left hung out to dry by the President.

If you can remember way back last week there were two competing plans – the Boehner Plan and the Reid Plan. The Reid plan was summarily thrown out. The Boehner plan became the template for the final agreement signed into law by the President. It was almost verbatim with only minor changes.

See for yourself. Cross compare the CBO analysis of the three plans:
The Reid Plan – CBO Analysis, 7/27/2011
The Boehner Plan – CBO Analysis, 7/27/2011
The Compromise Plan signed into law by the President – CBO Analysis, 8/1/2011

Both the Boehner and Reid plans were never really that different in the first place, but the minutia went to the Republicans, not to the Democrats.

You will first notice in the important last table, table 3, at the end of each report that the bottom line numbers of the compromise EXACTLY match what was in the Boehner Plan with only a one line addition. The extra line added at the very end is to raise the debt ceiling an additional $1.2 trillion by next January 15th. The final numbers don’t match the Reid Plan at all.

You will also see that the part of the Reid plan calling the previously planned end to the Iraq/Afghanistan wars a “spending cut” was correctly tossed out as bogus. And every Reid proposal for revenue increases, a trivial $55 billion, were thrown out to.

However, the Boehner Plan call for a vote on a balanced budget amendment by the Congress was kept. The Boehner Plan call for a two-step increase in the debt-ceiling was also kept. The Boehner Plan call for $917 billion in spending cuts was kept absolutely unchanged.

Both the Reid Plan and the Boehner plan called for the creation of a congressional deficit committee. The difference was in the Boehner Plan it had teeth and in the Reid Plan it existed only for show. The Boehner version was retained.

Pell Grant Pork

Government can’t pass any new law without some added pork. In this case it is pork for the President.

The President’s pork profits Pell Grants. It miraculously finds money to INCREASE spending on Pell Grants by $17 billion by cutting other education programs. (The Reid Plan called for $18 billion in new pork spending on Pell Grants)

That new spending is there for one and only one reason… to make the plan more palatable to the President who has a soft spot for them that everyone in Congress knows about.

But I digress… now back to our regularly scheduled compromise contestations.

How Does The Compromise Differ From The Boehner Plan?

The only real difference is that now there is an automatic built-in increase in the debt ceiling by another $1.2 trillion that happens on January 15th, 2012 if nothing else happens. That pushes another knock-down, drag-out debt-ceiling debate out past the November elections.

That was the President’s #1 priority. That is the heart of the deal President Obama made with Republicans.

The January debt-ceiling increase will also trigger a like amount of automatic spending cuts in discretionary spending, 50% of which are in defense.

What About The Big Congressional Committee Thingy All Over The News?

Oh yeah, that part. Yup, its in there.

It has this impressive sounding name, “Joint Select Committee on Deficit Reduction”.

The compromise law designates the creation of a special blue ribbon committee of 6 Senators and 6 Congressmen charged to come up with $1.5 trillion or more in spending cuts. They are offset by a like amount increase in the debt-ceiling. That committee is to be evenly split between Democrats and Republicans. Its members are not yet selected.

The committee’s spending cuts will replace the automatic spending cuts if they can be agreed on. It is expected to recommend at least $1.5 trillion in spending cuts, maybe more.

However, if the committee fails to come up with a plan that can pass the full Congress by January 15th then the automatic cuts kick in.

Its all neat and tidy for pushing the next real debt ceiling debate out past the next election… tailored that way just for President Obama.

Unfortunately the deal also means Congress will be squabbling over debt/deficits again before January. Oh boy, I can hardly wait… not!

The Joint Committee Changes The Rules

With creation of this new joint committee the Congress subtly but very profoundly changed the discussion point.

Up to passage we were talking about debt reduction. Its switched now. Congress is only talking about deficit reduction. Since the crisis has been avoided Congress feels it can ignore the debt problem once again.

Sure, you have to reduce the deficit first before you can reduce debt, but ignoring debt just kicks the debt can further down the road again to the inevitable moment a year and a half from now when the nation’s debt balloons to at least $16.411 trillion.

The 512 point stock plunge yesterday makes most liberals say we should even be ignoring deficit reduction. They feel only massive new government spending can create jobs and recover the economy.

What Democrats ignore is that the 512 point crash was partly caused by government overspending and debt. Government spending is part of the problem, not part of the solution.

The New Committee’s Achilles’ Heal

Liberals in the talk circuit chortle that the committee will propose tax increases that Republicans will be forced to accept in order to get spending cuts greater than $1.2 trillion and prevent large cuts in cherished defense spending.

They are dead wrong!

The new deficit reduction committee won’t accomplish anything. It will be all show and no go.

Why?

  • Automatic cuts will take us through the 2012 elections
  • No politician, Republican or Democrat, will support cuts that might jeopardize their chances for re-election
  • Congress is not forced to act on more spending cuts

Congress talks the talk, but can’t walk the walk. When it comes to standing tall Congress and the President fold like a cheap tent.

Even if the new committee proposes a deficit reduction plan it will be defeated in the Houses of Congress and never be signed into law.

Congress and the President are far to concerned about re-election to make hard choices.

The automatic spending cuts to discretionary programs will take effect as scheduled on January 15th, 2012.

After that the spin doctors will play the election year blame game as to which party is responsible for failing to fix our debt/deficit situation.

The Bottom Line

Hours before he even signed the compromise bill into law the President had already shoved the debt/deficit problem under the rug again.

As he should, the President rightly talked about creating jobs. You don’t have to be a rocket scientist to know job creation is our #1 problem that needs fixing.

His mistake, and the mistake of Congress, is failing to understand that our massive debt and deficits are big contributors to the nation’s weak economy and themselves are inhibiting job creation.

But the only solutions the President proposed involve more spending by government of money we do not have and will not have before January.

Conclusions

The debt solution Obama just signed into law will barely keep up with the $3.67 billion in daily deficits we already have through mid-2013.

In just one day, August 2nd 2011, the federal government spent $238 billion of REAL dollars just to catch up with our massive deficit spending without a single penny going to job creation.

The national cupboard is bare! There is no money for grand new “stimulus” job creation programs that the President and Keynesian Democrats visualize in their wet dreams.

And worse, the “spending cuts” aren’t even real. They are shadowy reductions of projected spending spread over the next 10 years. There is no fiscal responsibility whatsoever being exercised by government.

We will burn through the new higher $16.5 trillion debt ceiling just keeping up with existing bills.

We refuse to face the real enemy – government overspending!

The economy will remain weak, jobs will not come back and the problem will be worse in 2013 than it is right now.

Advertisements

About azleader

Learning to see life more clearly... one image at a time!

Posted on Aug 5, 2011, in 2012 Elections, Barack Obama, Debt, Deficit, Economy, Election, Elections, Harry Reid, John Boehner, National Debt, Obama, Politics. Bookmark the permalink. 2 Comments.

  1. “The economy will remain weak, jobs will not come back and the problem will be worse in 2013 than it is right now.”
    A really excellent analysis, AZ. I fear, however, that things are worse than they appear. I’m not comfortable that we have until 2013 to start putting our house in order. the markets are reacting badly, Italy and Spain are about to join Greece in the breadline and I don’t see how the European Union can hold it together. Investors are running to the US bonds as a save haven. Many see this a a vote of confidence in the US economy. It’s not. Right now they have no better option. The slightest up tic in inflation and the bond holders will be seeing negative returns. Game over!
    I’m very angry with the Democrats. We are facing a serious crisis and only the Republicans acted accordingly. I fear, because of the Democrats and Obama, we may have missed our last chance to demonstrate to the world the we recognize the error of our ways and we are serious about putting our house in order.
    I’m feeling very pessimistic today.

  2. I’m inclined to agree that things are probably worse than my last line predicts for mid-2013. My remark is limited just to the effects of government actual spending.

    I’ve been feeling more pessimistic recently, too.

    Its not that I don’t think we can’t solve the nation’s economic problems, I think we can. But it requires us to finally admit there is a problem. Congress and the President clearly don’t believe there is a spending problem.

    As long as that remains true we will continue on a path to further disaster.

Comments and questions are welcomed!

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 )

Twitter picture

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

Facebook photo

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

Google+ photo

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

Connecting to %s

%d bloggers like this: