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Losers All Around in Debt Limit Debate

For the GOP, their commitment is to cut not just  the rate of growth in government, but to roll back some of the great “achievements of the left," such as ObamaCare. Some in the GOP and some pundits on the right seem to think that control of the House is enough to dictate the results of divided government, and hence, the House Republicans are wimping out by not pushing for more cuts, sooner.  This view is about as realistic as Krugman’s call for more spending to create the jobs the previous spending did not. Exactly how does the GOP force its way to victory when Democrats control the Senate and Obama is the president?

As Krauthammer argues, Obama won in 2008 and set out to remake America. He got pretty far with his work, with ObamaCare the paramount achievement. Of course, ObamaCare is considered a deficit reduction bill for the next ten years by the CBO, so no one need worry about the $200 billion a year in new spending for what will turn out to be largely a middle class entitlement, since it is “paid for."  If enough companies drop health insurance coverage, pushing lots of people into the exchanges -- people the CBO assumed would remain insured by their companies -- the cost of the bill will skyrocket.

The Class Act, the new long-term care entitlement program in ObamaCare, was scored as a $72 billion deficit reduction program  in the first ten years, since premiums were collected for years before any payouts. This Ponzi scheme was so obvious a long term loser for the government that even some Democrats have come around and support killing it. The $14 plus trillion in current debt (internal and external), plus the near ten trillion to come over the next ten years -- including the “savings”  (deficit reduction) from ObamaCare -- are just the start. If interest rates rise, and if economic growth remains well below forecast (near 4%), the total debt numbers will rise more rapidly.

It is in this environment that Harry Reid proposes $2.2 trillion in deficit reduction over ten years with more than half of it artificial, coming not from spending as much as in prior years for wars that are already being wound down. And yet even this extremely modest back loaded effort at debt reduction is drawing fire from the left.

So how will this get resolved by Tuesday, if it does? The president is adamant that there can not be another vote on the debt ceiling before the 2012 election. The fact that votes to raise the debt ceiling  have occurred on average every 8 months over the last 50 years is simply inconvenient history for Obama. The Democrats now say they do not want another debt ceiling  vote that would spoil Christmas for shoppers in late 2011, perhaps the lamest attempt at argument in a month of weak parries. In reality, the president’s approval numbers have tanked to new lows (-12 in both Gallup and Rasmussen today),  with 42% average approval for these two tracking polls.

Obama and his team do not want to give him another chance to fail on the job, and have the debt issue front and center before the election. His mishandling of the debt ceiling/ debt talks has revealed a president who seems severely lacking in leadership and negotiating skills. He has appeared alternately unengaged, or angry, and has not gained the trust of members of either party. Having coasted for so long, he seems unable to deal with a situation where everything is not going his way. The deal  that Reid and McConnell offered to Obama last Sunday, which he rejected,  may still be the only thing than can pass both houses, though largely with Democratic votes in the House.

In essence, we seem headed for a package that will be advertised as over $2 trillion in deficit reduction over ten years, but will, in fact, be far less.  The spending cuts will be backloaded and gimmicky, particularly if it is Reid’s bill that becomes the model. There may be two tranches of debt ceiling increase, but the second piece will be fairly certain to occur, and not involve the haggling that accompanied this negotiation. There will be no new revenues. There will be no grand bargain.  And every incumbent, from the president to members of the House and Senate, will have an uphill battle explaining what was accomplished.

As Krauthammer argues, Round 3, the rubber match between the parties, will be in November, 2012. The big issue then will almost certainly be the state of the economy -- not the deficit number. The unemployment rate, and underemployment rate, and the rate of GDP growth will matter more, I think, than the deficit number. If all that spending did not produce jobs or economic growth, but only much bigger debts, then the political party which has argued for bigger government will likely  lose.