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Archive for Tuesday, August 2, 2011

Obama signs debt bill after final Senate vote

August 2, 2011, 11:37 a.m. Updated August 2, 2011, 1:12 p.m.

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— The Senate emphatically passed emergency legislation Tuesday to avoid a first-ever government default, rushing the legislation to President Barack Obama for his signature just hours before the deadline. The vote was 74-26.

Obama signed the bill little more than an hour later.

Tuesday’s vote capped an extraordinarily difficult Washington battle pitting tea party Republican forces in the House against Obama and Democrats controlling the Senate. The resulting compromise paired an essential increase in the government’s borrowing cap with promises of more than $2 trillion of budget cuts over the next decade.

“It’s an important first step to ensuring that as a nation we live within our means,” Obama said after the vote. “This is, however, just the first step. This compromise requires that both parties work together on a larger plan to cut the deficit.”

Much of the measure, which the House passed Monday night, was negotiated on terms set by House Speaker John Boehner, including a demand that any increase in the nation’s borrowing cap be matched by spending cuts. But the legislation also meets demands made by Obama, including debt-limit increases large enough to keep the government funded into 2013 and curbs on growth of the Pentagon budget.

“We’ve had to settle for less than we wanted, but what we’ve achieved is in no way insignificant,” said Senate GOP leader Mitch McConnell of Kentucky. “But I think it was the view of those in my party that we’d try to get as much spending cuts as we could from a government we didn’t control. And that’s what we’ve done with this bipartisan agreement.”

Many supporters of the legislation lamented what they saw as flaws and the intense partisanship from which it was forged. In the end, it was a lowest-common-denominators approach that puts off tough decisions on tax increases and cuts to entitlement programs like Medicare.

“What troubles me about it is that the bipartisan compromise also represents a kind of bipartisan agreement by each party to yield to the other party’s most politically and ideologically sensitive priority,” said Joseph Lieberman, I-Conn. “In the case of Democrats, it’s to protect entitlement spending. ... In the case of Republicans, it’s to not raise taxes.”

The measure would provide an immediate $400 billion increase in the $14.3 trillion U.S. borrowing cap, with $500 billion more assured this fall. That $900 billion would be matched by cuts to agency budgets over the next 10 years.

The Senate vote was never in doubt after Majority Leader Harry Reid, D-Nev., and McConnell signed on. But like Monday’s House vote, defections came from liberal Democrats unhappy that Obama gave too much ground in the talks, as well as from conservative Republicans who said the measure would barely dent deficits that require the government to borrow more than 40 cents of every dollar it spends.

“This is a time for us to make tough choices as compared to kick the can down the road one more time,” said freshman GOP Sen. Jerry Moran of Kansas.

The measure sets up a fall drama that promises to again test the ability of Obama and Republicans to work cooperatively. It establishes a special bipartisan committee to draft legislation to find up to $1.5 trillion more in deficit cuts for a vote later this year. They’re likely to come from such programs as federal retirement benefits, farm subsidies, Medicare and Medicaid. The savings would be matched by a further increase in the borrowing cap.

There’s no guarantee the committee, to be evenly split between the warring parties, will agree on such legislation. But there are powerful incentives to do so because more budget gridlock would trigger a crippling round of automatic cuts across much of the budget, including Pentagon coffers.

And questions linger about the effect the grueling political free-for-all will have on the U.S. credit rating.

Treasury Secretary Timothy Geithner told ABC News that he didn’t know whether the debt-limit fight would cause America’s AAA credit rating to be downgraded. “It’s not my judgment to make,” he said. Geithner also said he fears world confidence in the United States was damaged by “this spectacle.”

Enactment of the measure provides welcome closure for Obama, who has seen his poll numbers sag during the debt-limit battle.

GOP presidential candidates such as Mitt Romney and Michele Bachmann issued statements opposing the legislation.

“As with any compromise, the outcome is far from satisfying,” Obama conceded in a video his re-election campaign sent to millions of Democrats.

In a tweet, the president was more positive: “The debt agreement makes a significant down payment to reduce the deficit — finding savings in both defense and domestic spending.”

Comments

Paul R Getto 3 years, 4 months ago

"The measure sets up a fall drama that promises to again test the ability of Obama and Republicans to work cooperatively." === This is where it will get interesting. It's gonna be fascinating to see a) who gets picked from each party for the committee and b) what they recommend.

just_another_bozo_on_this_bus 3 years, 4 months ago

How about a four-person committee?-- let's say Dennis Kucinich and Ron Paul from the House, and Bernie Sanders and Rand Paul from the Senate.

If we're going to have a compromise, I'd rather it be a true compromise than the sham one we'd get from those who are clearly beholden only to Wall Street and the military-industrial complex, regardless of party affiliation.

Fossick 3 years, 4 months ago

Bozo, FTW. Isn't that a sign of the Apocalypse? :)

grammaddy 3 years, 4 months ago

Now can Congress get back to creating some jobs. Isn't that what the retardicans campaigned on? I mean besides taking Obama down.

Don Whiteley 3 years, 4 months ago

Don't you mean that the Democrats wanted no limit on how deeply they could bury this country in debt? The Republicans just don't want to tax any of their rich friends. Lets dump the lot of these bums and get a party that represents the American people.

beatrice 3 years, 4 months ago

Gee, it is almost like those in the market realize that cutting spending during a recession isn't a good idea after all.

Clara Westphal 3 years, 4 months ago

How about helping Americans. The foreign aid we keep giving to the countries who are in better shape than we are. is one spending cut they can make..

madcow 3 years, 4 months ago

While I agree we give out more aid than we should be at this point in time, the foreign aid is an insignificant amount of money in the grand scheme of things.

It is a low priority.

imastinker 3 years, 4 months ago

It is a low priority. that should make it easy to cut.

Jstanobservation 3 years, 4 months ago

That is BS.The amounts of foreign"aid" is not insignificant.We are talking about billions of dollars.

Flap Doodle 3 years, 4 months ago

“…And that is why Obama is in such terrible condition. He has had two huge dust-ups with the Republicans since the 2010 election, and in both cases, he gave in -- first on extending the Bush tax cuts, and now on the deal to avert a debt-ceiling debacle. What do you call a leader who can't lead -- who has lost the ability to turn the public discussion and turn the conversation in the direction he wants and needs it to go? You call him a loser. "This may bring my presidency down," Obama reportedly told Cantor in their testy exchange, "but I will not yield on this." He yielded on this. And it may bring his presidency down.” Read more: http://www.nypost.com/p/news/national/it_the_day_the_emperor_officially_mwR1iZyJRMqnrIbhaoGt7I#ixzz1TtsnjCcV

Keith 3 years, 4 months ago

"What do you call a leader who can't lead --"

John Boehner

grammaddy 3 years, 4 months ago

I thought the budget was formed by the House.

kthxbi 3 years, 4 months ago

OR: "...If the Democrats suck so bad at political combat, then how come they continue to be rewarded with such massive quantities of campaign contributions? " "It strains the imagination to think that the country's smartest businessmen keep paying top dollar for such lousy performance. Is it possible that by "surrendering" at the 11th hour and signing off on a deal that presages deep cuts in spending for the middle class, but avoids tax increases for the rich, Obama is doing exactly what was expected of him?"

http://www.rollingstone.com/politics/blogs/taibblog/debt-ceiling-deal-the-democrats-take-a-dive-20110801

Carol Bowen 3 years, 4 months ago

In McConnell's speech, he talked about the power related to serving on the committee. In Pelosi's speech, she referred to getting back to work on jobs, housing, ...

Fossick 3 years, 4 months ago

"And questions linger about the effect the grueling political free-for-all will have on the U.S. credit rating."

The free-for-all has no effect and never did. The problem with the credit rating is not the debt ceiling, but the deficit. Moody's said that, "The chances of a significant improvement in the long-term credit profile of the government coming from deficit reductions of the magnitude proposed in either plan are not high." http://thehill.com/blogs/on-the-money/801-economy/174447-moodys-neither-plan-protects-the-nations-aaa-rating

In other words, the US will be downgraded because it spends too much money, a fact unchanged by this agreement. All the stomping and screaming was just theater, not finance.

Carol Bowen 3 years, 4 months ago

I'd bet on this outcome. Why do people think August 2 is a magic date? The credit rating can be changed at any time.

Fossick 3 years, 4 months ago

August 2 was allegedly the date that the government would run out of money, as estimated by Secretary TurboTax - if we did not up the ceiling by today, then the budget would be immediately balanced by the fact that the government could only spend what it collected.

Not only was August 2 irrelevant to the credit rating, the credit rating is, for all intents and purposes, irrelevant to the government's cost of borrowing. Interest rates are not set by rating agencies but by auctions. A company or country's rating can affect its interest rate because there is an assumed 'spread' between a low-rated entity and the 'benchmark.' But the Treasury bond is the benchmark. It remains, for the immediate future, the benchmark. The likelihood that a debt 'downgrade' would change interest rates perceivably is very low indeed.

kthxbi 3 years, 4 months ago

Standard & Poor's put out a report about what the market is saying. The market is selling insurance "against" default at a pretty high price these days, meaning it believes a downgrade is going to happen. I'd post it if I could find it on a free site. Try searching "Market Derived Signal: The CDS Market Sees Potential For A U.S. Selective Default." A graph there shows the insurance rates (CDSs) flying way above the level expected even at the 'AA+' level. So where's the 'AA' line in that graph? 'BB' anyone? "Selective Default" is a complicated gray area, not a full bankruptcy.

jhawkinsf 3 years, 4 months ago

Wasn't it Standard and Poor's that gave Lehman Bros. a top rating one day before it collapsed?

kthxbi 3 years, 4 months ago

Sure. And given that the ratings agencies are all privately owned, and thus in no way neutral, while they also greatly enabled the banks in the run-up to the crash, this may yet happen, just because the owners want to do so. More important, however, is the fact that Obama is doing what he's being paid to do.

Fossick 3 years, 4 months ago

"The market is selling insurance 'against' default at a pretty high price these days"

I think a fool and his money are soon parted. The US will not default any more than Japan will - in both cases, the country prints the currency in which the bonds are denominated. In the worst case, the US will simply print $1m in US notes (paper, non-fed currency) for every million in bonds. Sure, those notes were last printed when JFK was prez, but I'm sure the plates are still in the Treasury basement.

But people forget that Japan was downgraded years ago, over a decade ago, and still enjoys rock-bottom interest rates. Of course, they are in a demographic death/debt spiral, but that does not keep people from lending to them. The crackup will be catastrophic, but the crackup is not yet... there are still more 'investors' to be fleeced.

Fossick 3 years, 4 months ago

Japan's citizens may be loaded with cash, but its government features the highest debt/GDP ratio in the developed world. But that's not the point; the point is that fear about a downgrade is based on theoretical factors, not experiential ones, as Japan proves. When the press says this may cause a rise in interest rates, they simply don't know. No one does. I strongly suspect it will not, but nor do I know.

You are correct that some investors will make a pile in this market (a few already have). Those who say today "you can't eat gold" (as if they work for french fries instead of dollars) will be clamoring for gold within a few short years. Greater fool and all that, and some people are too stupid to have money, at least for long.

Fossick 3 years, 4 months ago

How many french fries do you earn per hour? I mean, you can't eat dollars, right?

beatrice 3 years, 4 months ago

Or does the market recognize that cutting spending during a recession may lead to a further dip?

Fossick 3 years, 4 months ago

It's simply an example of Mr. Market acting as he wishes. Unless you sold all your stocks because of the debt deal, there's no reason to assume anyone else did either.

Sometimes the market goes up, sometimes down. The reasons assigned to those moves by the financial press are usually the least likely reasons.

But for the record, I don't think the market gives a rat's posterior about a debt downgrade. No one buys Treasuries because of Moody's opinion, and no one sells stocks today because bonds may (or not) go down in the vague future.

PS, there's no "cutting spending during a recession" anyway, because a) we're not in a recession (at least not officially) and b) the deal does not cut spending for 2 years, and then it only cuts a projected increase, and c) the likelihood of actual spending cuts is pretty close to nil.

Fossick 3 years, 4 months ago

And funny how 6 months ago the progs were all about civility in politics - no name calling, no belligerent imagery. Apparently the recovery of Gabby Giffords has freed them from these self-imposed shackles. They must be so thankful.

beatrice 3 years, 4 months ago

You are ignoring the fact that the market may be responding to cuts in spending during a recession. This action of taking funds out of the economy may push us further into the abyss.

You are now criticizing others for name-calling? Now that is funny.

Flap Doodle 3 years, 4 months ago

"Remember a few weeks ago when President Obama reportedly said to House Majority Leader Eric Cantor: "Eric, don't call my bluff"? Lots of commentators said that this was a "tell"--that by referring to "my bluff," Obama was admitting he was bluffing. Actually, his play was even worse than that. A bluff is a pretense. The bluffer knows he has a weak hand but bets as if he has a strong one in order to induce his opponents to fold. Obama had a weak hand but thought he had a strong one. His next words to Cantor, according to Politico, were a vow to "take his case 'to the American people.' " He actually believed--for all we know, he still believes--all that World's Greatest Orator nonsense...." http://online.wsj.com/article/SB10001424053111903520204576482083738819032.html?mod=WSJ_Opinion_BelowLEFTSecond

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