Archive for Sunday, July 31, 2011

It’s a deal: Obama, Congress will avert default

July 31, 2011, 7:44 p.m. Updated August 1, 2011, 12:34 a.m.

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— Ending a perilous stalemate, President Barack Obama and congressional leaders announced a historic agreement Sunday night on emergency legislation to avert the nation’s first-ever financial default.

The dramatic resolution lifted a cloud that had threatened the still-fragile economic recovery at home — and it instantly powered a rise in financial markets overseas.

The agreement would slice at least $2.2 trillion from federal spending over a decade, a steep price for many Democrats, too little for many Republicans. The Treasury’s authority to borrow would be extended beyond the 2012 elections, a key objective for Obama, though the president had to give up his insistence on raising taxes on wealthy Americans to reduce deficits.

The deal, with scant time remaining before Tuesday’s debt-limit deadline for paying government bills, “will allow us to avoid default and end the crisis that Washington imposed on the rest of America,” the president said in an announcement at the White House.

Default “would have had a devastating effect on our economy,” he said.

House Speaker John Boehner telephoned Obama at mid-evening to say the agreement had been struck, then immediately began pitching the deal to his fractious rank and file.

“It isn’t the greatest deal in the world, but it shows how much we’ve changed the terms of the debate in this town,” he said on a conference call, according to GOP officials. He added the agreement was “all spending cuts. The White House bid to raise taxes has been shut down.”

The House Democratic leader, Rep. Nancy Pelosi, was noncommittal. “I look forward to reviewing the legislation with my caucus to see what level of support we can provide,” she said in a written statement.

Many economists have expressed concerns that the spending cuts could threaten an already feeble economic recovery. The first half of 2011 marked the worst six-month economic performance since the Great Recession officially ended in June 2009.

No votes were scheduled in either house of Congress before Monday, to give rank and file lawmakers time to review the package. Senate approval seems virtually certain; the House could prove more difficult.

Without legislation in place by Tuesday, the Treasury would not be able to pay all its bills, raising the threat of a default that administration officials say could inflict catastrophic damage on the economy.

If approved, though, a compromise would presumably preserve America’s sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.

Even word of an impending deal earlier in the day by Senate Republican Leader Mitch McConnell of Kentucky sent U.S. stock futures upward. And before Obama had finished speaking, Japan’s benchmark Nikkei index, opening Monday morning — at 8 p.m. Sunday on America’s East Coast — was up 1.7 percent in early trading.

Not that the deal would end the political maneuvering. While eliminating the threat of default, it creates a remarkably short timetable for Congress to debate a huge and politically bruising deficit-reduction plan. The plan would require a committee of lawmakers to come up with $1.5 trillion more in deficit cuts from benefit programs or tax reform before Thanksgiving. Congress must vote on them by Christmas — or trigger across-the-board cuts that would hit the Pentagon and domestic programs.

Pending final passage, the agreement marked a dramatic reach across party lines that played out over six months and several rounds of negotiating, interspersed by periods of intense partisanship.

“Sometimes it seems our two sides disagree on almost everything,” Senate Majority Leader Harry Reid said in floor remarks.

“But in the end, reasonable people were able to agree on this: The United States could not take the chance of defaulting on our debt, risking a United States financial collapse and a world-wide depression.”

Vice President Joe Biden, who played an important part in this weekend’s negotiations, agreed. He tweeted, “Compromise makes a comeback.”

Not everyone felt that way.

“Someone has to say no. I will,” said Rep. Michele Bachmann, R-Minn., a contender for the 2012 Republican presidential nomination.

Across the weeks, Boehner emerged as Obama’s principal Republican antagonist in a contentious new era of divided government, yet struggled to corral his own rank and file at times.

At the end, though, McConnell and Biden, who looked on as Obama announced the deal, provided a negotiating channel to get the deal completed, overcoming a last-minute standoff over the impact of spending cuts on the Pentagon budget.

The plan calls for spending cuts and increased borrowing authority for the Treasury in two stages.

In the first, passage of the legislation would trigger more than $900 billion in spending cuts over a decade as well as a $900 billion increase in the government’s borrowing authority.

The spending cuts would come from hundreds of federal programs across the face of government — accounts that Obama said would be left with the lowest levels of spending as a percentage of the overall economy in more than a half-century.

The increased borrowing authority includes $400 billion that would take effect immediately, and $500 billion that would be permitted after Congress had a chance to block it.

In the second stage, a newly created joint committee of Congress would be charged with recommending $1.5 trillion in deficit reductions by the end of November that would be put to a vote in Congress by year’s end. The cuts could come from benefit programs such as Medicare, Social Security and Medicaid as well as from an overhaul of the tax code.

The committee proposals could trigger a debt limit increase of as much as $1.5 trillion, if approved by Congress. But if they do not materialize, automatic spending cuts would be applied across government to trim spending by $1.2 trillion.

Social Security, Medicaid and veterans’ benefits would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.

The deal marked a classic compromise, a triumph of divided government that would let both Obama and Republicans claim they had achieved their objectives.

As the president demanded, the deal would allow the debt limit to rise by enough to tide the Treasury over until after the 2012 elections.

But Obama’s request to extend the current payroll tax holiday beyond the end of 2011 would not be included, nor his call for extended unemployment benefits for victims of the recession.

Republicans would win spending cuts of slightly more than the increase in the debt limit, as they have demanded. Additionally, tax increases would be off limits unless recommended by the bipartisan committee, which is expected to include six Republicans and six Democrats. The conservative campaign to force Congress to approve a balanced-budget amendment to the Constitution would be jettisoned.

Congressional Democrats have long insisted that Medicare and Social Security benefits not be cut, a victory for them in the proposal under discussion. Yet they would have to absorb even deeper cuts in hundreds of federal programs than were included in legislation they had advanced in the final days before an agreement was reached.

Comments

DillonBarnes 4 years ago

Pat yourself on the back congress, you've squabbled like children only to put off our problem another year.

iLikelawrence 4 years ago

I just don't get why Congress has an obsession putting cuts over 10 years. How is 1 trillion a big number when it's only 100 billion of a 4,000,000,000+ yearly budget. That's a drop in the bucket. Does inflation make it moot after 10 years?

iLikelawrence 4 years ago

Edit: 4,000,000,000,000

Sorry I lost track of zeros.

Lee Eldridge 4 years ago

The biggest problem with "future" spending cuts is that future members of Congress are not bound by them, so there's no guarantee that $x in cuts ever becomes $x in cuts.

Daniel Kennamore 4 years ago

Well we are concerned about the deficit, not the total size of the entire budget; and yes projected numbers take inflation into account.

Coupled with the automatic cuts that will kick in unless the committee's recommendations are approved in December, this bill will cut ~$2.2 trillion dollars over the next 10 years. The deficit before this bill was $14.8 trillion for the next decade. This bill cuts the deficit by nearly 15%, with a possibility of even more from the committee this winter. Poo poo it if you want, but that is a non-trivial amount of cuts in my eyes.

conservative 4 years ago

Ilikelawrence because if you require reduction in spending you not only save that money but prevent increased spending which in the last 30 months have ballooned the debt by 4.5 trillion.

BlackVelvet 4 years ago

Why don't you grow up and vote for whomever will solve our country's problems, instead of simply a party-line choice. That's the dumbest thing I've ever heard.

Cai 4 years ago

unfortunately, that vote ends up being....impossible in 99 cases out of 100.

sometimes, presidential is different, but in reps, senators, and pretty much everything else, the politicians tend to vote with the party, not their own espoused beliefs / declarations during campaigning.

even this article talks about "a fractious rank and file" and

Pelosi is quoted with saying that "we'll ... see what support we can provide". (she may be talking here about she and her caucus... but past actions and quotes from her indicate she'd love to speak for all democrats in the house)

this system makes voting along party lines work in some cases. and, just because the system is broken doesn't mean that we can fix it by voting only for 'whomever will solve our country's problems'. thats not usually as clear cut.

that said, if you see said candidate, please be sure to let me know - before they 'fix' things.

beatrice 4 years ago

The Bush-era tax cuts for the wealthy were meant as temporary boosts to bank accounts, but they were intended to be temporary. Tea partiers and many of their fellow Republicans act as if they are sacrosanct and must last forever. Indeed, as others point out the problem with cuts intended to take place in the future are ignored when the future becomes the present.

I wish the bipartisan committee to be assigned the task of continuing this discussion well.

labmonkey 4 years ago

What you don't get is the Bush tax cuts cut taxes for everyone. Unless you are a jobless sponge, you will pay more if they ever expire.

beatrice 4 years ago

I get that the Bush-era tax cuts were for everyone, while also recognizing that the amount of money that went to the wealthy was dramatically in their favor over everyone else. We are in debt and needing to pay for wars. It is called sacrifice. Ask your grandparents about it.

jhawkinsf 4 years ago

It's been said that the best way to have something permanent in Washington is to label it temporary.

weeslicket 4 years ago

if everyone's unhappy, that's often a sign of an actual compromise. and we all get to live to fight another day. (no worries. plenty of days of fighting ahead.)

Gregory Newman 4 years ago

They all are lying. There will never be job creation the manufacturing base is gone forever the best one can do is work retail or for private security. Health care field is viable but extremely hard to qualify. Janitorial and construction has gone to the illegals. We are a consumer Nation period. NAFTA/GATT is the demon. If they all are serious Obama and the Senate and the House should repel NAFTA/GATT and get rid of all subsidies. We don’t need corporatism we need capitalism. They all are sold-out to Wall Street lobbyist at 4-500 thousand a month. That answers for the cry “don’t tax the rich.” President Reagan created the large work force from 20-36 hr. work week with no benefits in the retail market and now they are gone or struggle to survive. There are so many millions full of anxiety that they cannot see that we’re done. No one should blame Obama they never wanted him on the team the voters did. Presidents are not law makers it’s the house and senate period. http://youtu.be/xOnBoYygcNc

ljwhirled 4 years ago

Betrayed by Barry-O again.

The right held a gun to everyone's head and he gave in.

Gee, I wonder what the tea-party is going to do the next time they have the opportunity to threaten to wreak the economy? Hmmmmm.

He should have stood fast and let them do it. It would have ended the tea party and maybe put some responsible adults in office.

Cai 4 years ago

to be fair, even if he had, the same people would be blaming obama for the problems, and the same people would be blaming tea party and / or republicans, and the same people would be blaming democrats.

the truth of the matter (regardless of what it is) rarely enters into political blame.

riverdrifter 4 years ago

Tea baggers are to blame for this last-minute mess and they will pay for it down the road, never fear.

just_another_bozo_on_this_bus 4 years ago

"Didn't I tell you all that a deal would be made before the deadline?"

And I predicted the sun would rise in the east. Can I pat myself on the back for that bit of clairvoyance?

Regardless, the creditors are playing in the same house of cards as the US economy, which is the single largest element of that shaky structure.

That doesn't mean that it won't one day collapse because the herd mentality that passes for an "economy" on Wall Street and other investment capitals around the world has spontaneously stampeded.

But until then, the creditors will pretend that all is well as long as they possibly can. After all, they have more to lose than anyone if US bonds are ever declared junk.

grammaddy 4 years ago

It's not the ideal EVERYONE wanted, it's probably not the best deal, but at least it's a start. We hope. It still has to be voted on.

Pastor_Bedtime 4 years ago

Emmanuel Cleaver says it's a "Sugar-Covered Satan Sandwich." I guess it can't bee too bad then.

Joe Hyde 4 years ago

Eight years of George W. Bush gave us extremes in banking deregulation, two expensive overseas wars and an exploding national debt -- each of which can be viewed as a massive tax hike on the American public. And yet our wealthiest Americans and American corporations remain largely free from paying their rightful share of the tax burden despite the increase in wealth they've achieved.

If nothing else, this agreement that averts the Default Disaster buys time for the American public to further contemplate the fundamental political aims of the current crop of politicians. Ever since the election of President Obama, then the 2010 mid-term elections, Tea Partiers especially and Republicans in general have been relentlessly hitting the public with a full-court press of social issue laws and regulations intended to impose far-reaching government control over the personal lives of ordinary citizens while simultaneously taking a hands-off approach to controlling the behavior of corporations (including refusing to raise taxes on corporations and the wealthy to fair levels).

Given this chance to catch our breath, come the 2012 elections it will be interesting to see if the American middle class and working poor finally identify, and respond to, the above inequities by going to the polls and voting many Republican and Tea Party incumbents out of office in favor of having moderate Republicans and more Democrats in the Congress. It could happen, and I hope it does.

Richard Heckler 4 years ago

Obama was right when he called for closing the loophole in Medicare Part D to allow the government to use its bulk-purchasing power to negotiate lower drug prices YES !!!

Hands Off Medicare AND Social Security!

Hands Off Medicare! Healthcare-NOW! is fighting back! The deficit commission is meeting behind closed doors regularly to balance the nation's budget on the backs of working people looking to the programs that keep us from financial devastation – social security and Medicare.

We say cuts to these important programs are "OFF THE TABLE." http://www.healthcare-now.org/campaigns/single-payer-rally/

Medicare is The Solution NOT The Problem http://www.healthcare-now.org/why-medicare-is-the-solution-not-the-problem/

5 important Myths surrounding Social Security http://www.moveon.org/r?r=89703&id=22140-1285051-8ACVPdx&t=9

camper 4 years ago

What Riverat said.....and maybe add a little.

I see this too as some time bought. Live another day. It is truly astounding the consequences that could have been brought forth if the US defaulted. It could have instigated a world crisis. It is further astounding that Bachaus or whatever her name is said just last Friday, that she would not support raising the debt ceiling.

It is hard for me to admit this, but if the Tea Partiers are right about anything, it may be the notion that drastic change must take place because we face some serious problems as a nation. Growing the economy while cutting spending is difficult. Creating jobs in the face of a shrinking mfg base is tough. Cutting military spending will displace workers. Reducing the debt without increasing revenues is impossible. Man, there are just no easy answers. And I have almost zero confidence that our political system is designed to solve these problems unless things go completely into the tank. Only then it seems that we Americans do the right thing. Only then do we show our mettle. Why is this?

But at the end of the day, we have another day. Perhaps another chance to solve some problems before they completely spiral beyond control.

just_another_bozo_on_this_bus 4 years ago

" Perhaps another chance to solve some problems before they completely spiral beyond control."

Unfortunately, plunging the world into a death spiral seems to be the sum total of Republican policy these days. Trying to make a deal with them is like trying to make one with a suicide bomber.

And sadly, for way too many Democrats, the only solution they seem to be able to come up with is to strap some bombs on themselves, as well.

jonas_opines 4 years ago

You know, another last minute deal after weeks of posturizing, and I might get the inclination that the only thing to any of it is making a show to score political points or something. . . .

. . . . but that's just unpossible!

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