I considered various titles for this post, including—
Much Ado About Nothing (Shakespeare)
Sound And Fury Signifying Nothing (Faulkner, borrowing from Shakespeare)
Needless to say, the debt ceiling will be raised, so America will pay its bills. We'll go over some of details of the deal. Here's the Decline of the Empire clause, from a Bloomberg editorial.
The markets’ [tepid] response underscores an unfortunate reality: While the government may have averted a self-inflicted disaster, it hasn’t solved fundamental problems and appears to have created new ones. What the U.S. needs is a deficit-reduction plan to address its long-term fiscal gap without weighing too heavily on a weak recovery.
Instead, it’s getting the opposite: immediate spending cuts that threaten the recovery in the short term but aren’t substantial enough to fix the long-term budget problems.
A self-inflicted disaster. The government held a gun to its head and threatened to kill itself (video below). Fortunately—or unfortunately, I can't decide which—the government didn't pull the trigger.
Guess what? There is no "plan" in any time frame which will address both the long-term fiscal gap without weighing heavily on a weak recovery economy. This "plan" doesn't exist! Can't possibly exist!
As I've told you over and over again, it took 30 years to get here. That's why the politicians basically did nothing, for there is nothing they can do so without 1) screwing the special interests who actually elected them or 2) screwing the low- and middle-income people who voted for them. That's why every citizen with an interest in the matter—outside the politicians who negotiated it—is unhappy with the deal. That's why the government is feeling suicidal lately. Forget about the politics, those are mere details. Think about it. It's not clear which is worse: raising the debt ceiling or not raising the debt ceiling. Few Americans can wrap their heads around this. Prepare yourself for a lot of future unhappiness.
What happens this year and next? Back to Bloomberg—
Under the deal the House approved Monday, the government must find $21 billion in new spending cuts next year, and possibly much more.
If legislators fail to agree by the end of this year on at least $1.2 trillion in further deficit reduction, the country will face indiscriminate cuts in domestic and defense programs.
What about that second round of cuts? Let's be more specific—
Immediately enacted [are] 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; [the cuts are] balanced between defense and non-defense spending.
The cuts are back-loaded. The $1 trillion in cuts over 10 years, which is mere chickenfeed, will take place between 2013 and 2022. If you're paralyzed and can really do nothing, the political rule says kick the can down the road, postpone, postpone, postpone. Everything can be re-negotiated (or not) later.
[The[ President [is] authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013.
[The] Bipartisan committee process [is'] tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform. [The] Committee is required to report legislation by November 23, 2011, which receives fast-track protections. Congress is required to vote on Committee recommendations by December 23, 2011.
[An] Enforcement mechanism [is] established to force all parties – Republican and Democrat – to agree to balanced deficit reduction. If [the] Committee fails, [the] enforcement mechanism will trigger spending reductions beginning in 2013 – split 50/50 between domestic and defense spending. Enforcement protects Social Security, Medicare beneficiaries, and low-income programs from any cuts.
I am actually hopeful about that last sentence. The problem is that a deal is not really a deal. All of this could be re-negotiated (or not) in the future. The government will next put a gun to its head during November and December. Anything could happen. We can look forward to these same political clowns pulling these same shenanigans starting 1 day before Thanksgiving right up until 2 days before Christmas. They will endeavor to terrify Americans during the holidays! Jesus wept.
To get this deal, President Hopey-Changey negotiated away the government's ability to raise revenue by enacting tax increases, including tax increases on the richest Americans or higher corporate tax rates. Even if the government did avoid suicide by debt ceiling limit, it shot itself in the head anyway if this part of the deal stays in place. The government is dying, which is one of the many reasons the politicians need to remind you periodically just how important they are.
Back to the short-term, from Bloomberg.
The cuts could hamper the recovery, especially given [the] $250 billion in expiring unemployment benefits, the end of the temporary payroll-tax cut and the winding down of the stimulus program.
Growth was barely evident in the first half, and a manufacturing report Monday showed a steep deterioration in both activity and hiring plans in July.
With the debt ceiling charade winding down, everybody woke up this morning and realized the economy sucks! And indicators like the latest ISM Manufacturing report say it's getting worse. As the economy gets worse and "growth" remains mediocre over time, government revenues plunge. When revenues decline, the deficits get larger. But Congress can not act, as they just demonstrated. This latest manufactured crisis was Much Ado About Nothing. The next manufactured crisis is coming your way during the holidays.
Round and round it goes, where it stops, nobody knows. Welcome to the Empire's Decline.
Bonus Video — Hat tip to Yves Smith of Naked Capitalism and Paul Jay of The Real News Network, whose discussion of the debt ceiling debacle inspired today's bonus video. If don't know this scene, shame on you
Don't forget, there is another battle that will be brewing even before the Thanksgiving/Christmas time frame--over the FY-2012 budget, which starts on October 1st. I fully expect there to be the threat of yet another federal government "shutdown" at that time.
Posted by: Bill Hicks | 08/02/2011 at 11:53 AM