From all news reports on Sunday, a deal between Republicans and Democrats to raise the debt ceiling is near, as the U.S. moves closer to the deadline for default on August 2, if it falls apart. Despite President Barack Obama’s rhetoric over the past several weeks about a balanced approach to cutting the nation’s deficit, the deal on the table is one which will slash spending by $3 trillion in two stages–more than$1 trillion up front and another $1.8 trillion coming from recommendations of a special Congressional committee by late November. The brunt of these cuts will fall squarely on the most vulnerable–working Americans, seniors, children and the poor.
And what did Mr. Obama get out of the deal with the GOP? An extension of the debt ceiling beyond 2012. That’s it. This is what Mr. Obama got–to get to election day in November 2012 without having to ask Congress to raise the debt ceiling again.
Mr. Obama has given up everything else. He has brokered a two-step deal which involves only spending cuts which would surely include, Social Security, Medicare and defense and other programs that will hurt even more those who could least afford it. The deal does not include any tax hikes nor does it entail closing any tax loop holes that would lead to wealthy Americans and major multinational corporations paying their fair share.
With these massive spending cuts, expect the economy to only get worse and growth which is already anemic to slow even more. Last week, an economic forecasting firm, Macroeconomic Advisors analyzed both the Republic and Democratic debt proposals. The upshot: either plan would “significant slow economic growth if enacted.”
As Paul Krugman confirmed on Sunday, the debt deal will worsen the current unemployment situation and the U.S. long-run fiscal situation.
“We have 9 percent unemployment. These spending cuts are going to worsen unemployment. It’s even going to hold the long-run fiscal picture because we have a situation where more and more people are becoming permanent long-term unemployed,” Krugman said.
Added Krugman, “We’re having a debate in Washington, all about, ‘Gee, we’ll make the economy worse, but will we make it worse on 90 percent of the Republicans’ terms or 100 percent of Republicans’ terms?’ The answer is 100 percent.”
As Mr. Obama said last week, “it’s time to eat our peas.”
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