Dean Baker: US debt deal: how Washington lost the plot

from the Guardian UK:


US debt deal: how Washington lost the plot
Politicians and the media are obsessing on debt, deficit and cuts, but the real story is a stalled economy and rising unemployment

Dean Baker
guardian.co.uk, Monday 1 August 2011


President Obama and the Republicans in Congress have finally worked out a deal over the debt ceiling. It appears as though the Republicans got most of what they wanted: big cuts to domestic spending and no tax increases.

On the plus side, social security and Medicaid appear to be largely intact, although the deal commits Congress to set up another one of those dreadful "bipartisan" commissions, and some cuts to Medicare are on the table. The main qualification for being chosen as a member or staffer for this commission will be that you were too ignorant of the economy to notice the $8tn housing bubble whose collapse brought on the current crisis. Fortunately, Washington has no shortage of policy wonks who fit this description.

While many in the media and around the country had been panicking over the possibility that no deal would be reached and the government would actually default on its debt, those who understand American politics knew that this is not a concern. The reason is that Wall Street is on the frontline in this battle.

If there were a default on US debt so that it could no longer be held on bank books as being a riskless asset, most of the major banks would likely be insolvent. It would not be just US debt that must written down, but also debt implicitly guaranteed by the government, such as mortgage-backed securities issued by Fannie Mae and Freddie Mac, as well as a wide range of other assets held by the banks. .............(more)

The complete piece is at: http://www.guardian.co.uk/commentisfree/cifamerica/2011/aug/01/us-debt-deal-washington-unemployment

Every politician in Washington, especially the democrats knows, that wall street wouldn't let it happen.

issue. In the short term, we NEED DEFICIT SPENDING TO PROVIDE DEMAND FOR THE ECONOMY that is not currently coming from the private sector.

Again, NOT FIGHTING THE DISINFORMATION WITH INFORMATION.

HE should have said something like: "No Deficit reduction plan is complete without actions to get the economy growing NOW. A growing economy is an essential part of any deficit reduction strategy."

Robert Sheer said the same thing a long time ago. Wall Street would never let that happen, and if fact, did not let that happen. They let DC know this weekend they must make a deal, end of story. They put those Teabaggers in office and would not give them another penny if they didn't get this thing dealt with.

Too bad our president fell for the terrorist's bluff. He should have called their hand and said I'm not attaching anything to this. I want a clean bill and that's that. They would have had to give it to him. But of course he always hands them over most of what they want before the negotiations even start and the Republicans know he will cave and give them more than they thought they could get. And so it will continue even if Obama gets reelected. Won't make a difference that we have a Democrat in office if he continues to enact Republican policies.

Bah.