Not Enough Yet, but House Bound to Cut More Spending
I argued on July 29 that the donkey had pinned the tail on itself. The donkey is already squirming and President Obama, following Senate passage of the bill, continued to call for more taxes on "the rich":
“We can’t balance the budget on the backs of the very people who have borne the biggest brunt of this recession,” Obama said in appealing for measure to raise more revenue from the wealthy and corporations. “Everybody is going to have to chip in. It’s only fair. “That’s the principle that I will be fighting for in the next phase of this process.”
Recent events suggest that the donkey should not feel comfortable. On the day after the House approved the debt limit deal, the anticipated euphoria on Wall Street was dampened by fears of rising interest rates, presumably triggered by increases in interest the government will have to pay for new borrowing due to a credit risk downgrade or even a warning. On that day, the Dow closed down 265.87 points (-2.19%) and the NASDAQ closed down 75.37 points (-2.75 percent) -- hardly auspicious signs. On August 1:
Obama administration officials were not sure if the initial cuts of $917 billion over the next decade, with an additional $1.2 trillion to $1.5 trillion coming in a second step, would be enough to avoid a downgrade.
"We certainly hope that that sends the signal that Washington is getting its act together and dealing with these tough issues," Carney told reporters.
Standard and Poor's has been rather less sanguine:
The firm indicated in July that it would downgrade the U.S. credit rating if a debt-ceiling deal did not cut spending by about $4 trillion over the next 10 to 12 years. For that reason, Rajadhyaksha said S&P could be the only major ratings agency to downgrade if the deal is approved.
Gary Schlossberg, senior economist at Wells Capital Management in San Francisco, agreed.
"If you took them at their word over the last couple of months, this clearly falls short of what they were looking for," Schlossberg said.
The debt limit legislation does not come even close to approaching a $4 trillion cut. The United States will not become Big Rock Candy Mountain and Wall Street knows it:
Rasmussen reported on August 2nd:
On the morning after official Washington patted itself on the back for a deal to raise the debt ceiling, investor confidence has fallen to the lowest level since March 24, 2009.
The Rasmussen Investor Index, which measures the economic confidence of investors on a daily basis, fell five points on Tuesday. At 68.9, investor confidence is down seven points from a week ago, down 12 points from a month ago, and down 17 points from three months ago.
Just 16% of investors believe the economy is getting better while 63% say it is getting worse. At the beginning of the year, they were evenly divided on that question.
If the House refuses to appropriate funds needed for further implementation of obnoxious and wasteful schemes for fiscal 2012 and 2013, the Obama administration will have to discover ways, contrary to Article I, Section 9, to borrow lots of money within the new debt limit for those purposes. However, by doing so it is likely to bump up against another debt ceiling sooner rather than later, possibly before the 2012 elections -- the main thing the Obama administration sought to avoid.
There are many targets for spending reductions. As I observed here in January of this year:
There are so many places to start that even to select a few for the defunding prize or even for “honorable mention” would be a Herculean task. Still, a few stand out. The Environmental Perversion Protection Agency (EPA), the Federal Statutory Abuse Communications Commission, the Department of Religious meddling Justice and now the Department of Obesity Reduction Agriculture would be good starts. So, to the extent that such is possible, would be the United in destruction of civilization Nations, which is about to have a conference supporting racism and has strayed so far from its course as anticipated by Winston Churchill that it resembles his dream less than does a horse resemble a snake.