AA+: The Debt Ceiling Revisited

factsheet-the-debt-deal

The other day Standard & Poor’s downgraded America’s credit rating for the first time in its history, knocking it down one level from AAA to AA+. The downgrade happened despite an eleventh hour deal between the Republican controlled House of Representatives and the Democrat controlled Senate to raise the U.S. debt ceiling, the deal was signed by President Barack Obama early last week.

The deal brought an end to months of bickering by politicians over spending cuts and tax hikes. The battles that raged in Washington over that period of time came across as a battle of good and evil and not just differences of opinion. So instead of seeking a real long term solution, both parties were happy to play political chicken, catering to their base until their cars were within meters of each other.

Like all wars waged on false pretenses there was no winner, just losers; the losers being the American people. While it seems on the surface that Republicans got more of what they wanted, it could come back to haunt them. The debt deal called for a raise of $2.4 trillion to the ceiling with $917 billion of spending cuts over ten years and another $1.5 trillion to be cut by a special committee of lawmakers.

Speaking of political chicken, this special committee or so called “Super Senate” made up of six Republicans and six Democrats will no doubt debate to no end on where to further cut spending and being only twelve, it thereby spares most law makers from making decisions that could cost them an election.

House Speaker Boehner, President Obama & Harry Reid

Liberal progressives were no doubt the angriest as the deal called for no new revenues, forcing the poor to take the biggest hit with cuts to entitlement programs. Moreover, this means wealthy Americans will continue to enjoy the lowest tax rates since the 1950’s. Tea Party enthusiasts were angered that the cuts did not go far enough, and were displeased at the failure to pass a constitutional amendment forcing the government to balance its budget.

Democrats, Republicans and Tea Baggers are all right in their own way. No matter how they try and spin it, the spending cuts in this deal will bring the annual budget deficit down from $1.2 trillion to $1.1 trillion, so in the end you still have a massive deficit. Picture a man who adds $1,000 every month to his credit card and decides to save money by only adding $900 the next month; he is still spending money he doesn’t have and it will catch up to him before long.

What goes up, doesn't come down

Some people believe that personal borrowing is different from government borrowing, nevertheless I can see the Tea Party point of view here, however I do not agree with a law forcing the government to balance the budget. Just like at home, emergencies can occur and be expensive.

The Tea Party does have a knack for taking things too far, cutting expenditures on a massive scale without increased revenue would only further hurt everyday citizens. Gutting welfare, social security and medicare is a huge tax on the poor, ironic (or moronic) given the Tea Party’s opposition to taxes, but they don’t seem to care as long as the money isn’t going toward the government. The U.S. Government spent $685 billion on defense alone last year, figure in the Bush tax cuts for the wealthy and you’re over a Trillion dollars already, surely there are better ways to balance the budget than on the backs of the poor.

Regardless of how politicians decide to tackle this debt crisis, consider this; at the current pace, by the year 2020 the federal deficit will be around $24 trillion or about 33% more than the country takes in annually… and you thought the interest payments on your credit cards were high. If no serious action is taken soon, Americans will soon be praying for a return to that AA+ rating they’re at now.

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