Sen Reid and Speaker Boehner have come up with competing plans to up the US debt limit. Boehner’s plan will get us by the ‘sky is falling’ default scare and give time for a serious debate on tax reform and meaningful spending cuts that should last for years. Among other provisions, it calls for an intermediate rise of $1T in the debt limit and a 10-year span of $3T in spending cuts. The plan also calls for a further debt limit rise next year pursuant to progress on tax reform and meaningful spending cuts in entitlements.
This has a chance of trying to bring the US in for a soft fiscal landing without opting for the inevitable monetary (hyperinflation) catastrophe. However, it’s a poison pill for Obama’s re-election hopes since it will bring up all of the President’s fiscal mismanagement during a most inconvenient time. Next year, he’ll have enough trouble two-stepping it through the economy while still trying to lay everything at Bush2’s feet – hell, it’s worked before.
Reid’s plan is a farce that advertises $2.7T in spending cuts over the next decade, but contains no real spending cuts at all. He proposes to take almost all of it from the military with a sop of $30B (chump change) to be derived from some mysterious “reforms” of Fannie and Freddie. The military cuts are both ill-advised and cynical, and remind us of Chamberlain waving his 1938 ‘Peace in Our Time’ agreement as he returned from a meeting with Herr Hitler – WW2 started less than a year later.
In any event, neither the new Senate nor House plan addresses the currently inevitable scenario of our having to borrow a trillion plus every year into the indefinite future. Shaving these one-off handful of trillions over a ten year span will do nothing to keep our debt-to-GDP ratio from rising. And the markets are telling us that the world knows it. Everyone there continues to play musical chairs as they all prepare for a timely exit while leaving everyone else holding the bag as our over-burdened fiscal freight train hits the wall. Or are they expecting Congress to pass a balanced budget amendment over the President’s veto? Who said markets were rational?
Finally, both the President and Speaker spoke last night about the current crisis. The President gave an excellent campaign speech to those who have not been paying attention. He actually didn’t even recognize the events of the day described above. The main message was to please not bring up debt ceilings or spending cuts or anything like that next year during election season. He was adamantly against any short term solution that “would just lead to another standoff in six months” (instead of right after the election as with his and Reid’s proposals).
I don’t understand how this 'keep upping the spending limit, tax more, and cut spending later and less' approach of the Democrats is supposed to work. If these standoffs on debt limit are such a pain, and everyone in the Beltway promises to work hard to bring sanity back to the nation’s fisc, then I have a proposal for our national leaders. Why not give ourselves some real breathing room for cool calm deliberation, why not take the pressure completely off to finding a sensible plan forward, why not really reassure the markets and rating agencies, why not make everyone as happy as pigs in pucky, why not quit messing with these piddling amounts every year or so, why not simply raise the debt limit $30 trillion? Why not kick the can waaaaay down the road?