The deal between the Congressional leadership and the President is much ado about nothing, in that – contrary to the kudos, rationalizations or moans – it actually does and will do little to affect the rapidly rising federal deficits and debts. It is less than trivial in the next year that it actually affects and almost entirely a lie over the next decade as future Congresses and presidents work around or ignore it.
The deal will cause increased demoralization among the citizenry both over its lack of real content and as politicians wrangle vigorously over scraps treated like whole cloth. It will also cause a new sobriety, already in painful motion, among the citizenry who have lesser prospects than before this deep recession and little reason to believe the future will personally be much better. Consumption will be restrained.
It is clear that the status quo is continued, for now at least and likely into the foreseeable future.
Spending is not reduced. It only promises a reduction in the present trendline of forecast spending, a fraction of the increases that will actually occur. And, there is little reason to believe that either Medicare or defense spending will be more than trimmed slightly in 2012. Part of that trendline, as scored by the Congressional Budget Office (CBO) is a $multi-trillion increase in taxes as the Bush tax-cuts are allowed to expire right after the 2012 elections. There is little reason to believe that such a drastic increase in taxes will be allowed to occur. Longer term, even if a trillion$ or three-$trillion dollars of spending were most optimistically avoided over the next decade, that’s a hundred to three-hundred $billion per year, a small fraction of federal spending.
If, as seems likely, the 2012 elections result in a Republican president and both houses of Congress, there will be more trims to spending, a good thing surely but likely to increase the howls of real and defensive pains and hardly likely to actually reduce the deficits significantly. The Cut, Cap and Balance that the Republican House passed is likely, and decidedly a better thing, yet as tides and lobbies weigh in will be weakened and end-run over time.
Fears about the crash of the dollar are overblown, as there is no viable alternative in a euro-myth euro or speciously corrupt Chinese renminbi. Lenders will demand higher interest rates and that will increase the deficits worldwide. Fears about more global conflict are not overblown. Enemies of order or Western civilization will continue to probe and attack. Reducing mental and defense preparedness by the US will encourage such foes and increase the needs to confront, which will be less successful and more costly to servicemembers and foregone goals.
So, long story short, the status quo will continue. It will be perceived as or really be painful for all, even under the best of circumstances.
One can argue that far more severe governmental actions or changes would reverse this. They are unlikely to occur. There will be more restraints on deepening the hole, but the hole remains. We’ve already dug it by a generation or two of profligacy and excuses. Only a generation or two of serious reduction in personal and government spending, plus economic recovery that must depend upon lessened government regulation and interference, will begin to maybe return us to realistic optimism.
I predict that the demoralization will be temporary and the new sobriety will ultimately triumph and set us right. The path will be long and hard to dig out of several generations of delusions that we could spend our seed-corn, requiring perseverance and sacrifice of self and illusions, but it is well marked.
BTW, I'm encoraged that the cautious and knowledgeable Mitt Romney is opposed to the debt deal, both as an economic realist and political positioner. The debt deal will pass anyway but he will be demonstrated as correct during the coming election season. That may not win him enough points to score, but does indicate a will among Republican moderates that together with the more conservative and Independent centrists -- as polls presently show -- will lead to the next vital step up with a Republican White House and Congress. The road of a thousand steps begins with the first. We've taken the first and 999 remain.
