American Debt Ceiling deal finally reached, but will it pass?

01-08-11  

 The US government had been attempting to reach a deal on the debt ceiling after weeks of political horseplay between the sides in their two party system. With the dreaded August 2^nd deadline fast approaching, the implications of a record default on the debt ceiling acted as the catalyst for bipartisanship. The ambiguous reality of what would happen if America default’s on their debt is murky territory as it has never happened before. The predicted consequence from most economists seems to be a complete loss of faith the US economy. A minority do believe the effect will be much more minor like a slight slump in the market.

   From when talks commenced, Republicans have been calling for cuts to all government programs, while the Democrats have proposed a ‘balanced’ approach with cuts as well as revenue increase. That was the starting point. Over the last few weeks, the position of the Republicans has been one of refusal to compromise, while the Democrats have inched their proposal closer and closer to what the other side wants. The Democrat’s proposal as it was on Friday was one with more cuts than initially called for by the Republicans and yet was met with disapproval initially until an agreement was finally met on Sunday.

   The deal consists of $2.4 trillion deficit reduction over 10 years, a new congressional committee to recommend a deficit-reduction proposal and a two-stage increase of the debt ceiling. The plan still needs to pass in both houses (House of Representatives controlled by the Republicans and the Senate controlled by the Democrats) so the battle is not yet won.

Analysing it at a first glance, it seems the Republicans have come out on top after the two sides held the well-being of the country’s economy hostage. This strategy is nothing new for the Republican caucus which has had a strict policy of not cooperating under any circumstances with the other side since President Obama took office. The Speaker of the House John Boehner will need to rally all his Republican troops behind him in order to get this mandate through which will prove to be challenging with the new tea party wing of the Republicans.

    The tea party that emerged as defiance against government spending have been plagued with inexperienced members who have proven time and again their ignorance of politics, history and economics. Seemingly just held together by anger and opposition to change, there have been accusations of racism due to the nature of attacks perpetrated by the group; including the refusal to believe in the legitimacy of President Obama’s place of birth, belief he is a secret Muslim, and general unprecedented outrage about his liberal plans despite all actions pointing to a centrist President with a great propensity for compromise.

   The Democrats also have a hard road ahead to pass this deal as the more liberal wing of their party feel short-changed by the President who has once again caved into compromise with those unwilling to share the burden. They have been critical of the plan and President Obama’s leadership as it is all cuts with no tax increases; a far cry from their ideal plan. As with the health-care bill, when the President angered his liberal base when the single-payer option was dropped early on in debates without a serious fight or as with the decision to continue the Bush tax cuts on the wealthiest 1% of Americans. The White House has been quick to agree with the sentiments expressed but reminded the Democrats that they need to get this passed so they can concentrate on creating jobs. Due to small timeframe given for the decision, the President had to drop the Democrat’s main priorities including raising revenues via cutting corporate tax loopholes and ending the oil and gas industry subsidies.

   The Republicans have been opposed to such measures as well as any tax increases even for the wealthiest Americans, which all couple to reveal the chokehold of lobby groups in their party. Another criticism from the left-wing has been that the cuts to the government programs like Medicare, Medicaid and Social Security will hurt the middle class, playing into the opposition’s hands with the coming election. Campaigning has already begun for the 2012 election which surely is in the forefront of all minds while making decisions.

    When the President and the Speaker pass the deal today, the Democrats will have to confront their leadership, because it seems the Republicans have learnt they can win by being recklessly stubborn. Quoting Speaker of the House John Boehner, “There is nothing in this framework that violates our principles. It’s all spending cuts. The White House bid to raise taxes has been shut down."