published Monday, August 1st, 2011

Obama, Congress will avert default

President Barack Obama speaks from White House briefing room, Sunday, July 31, 2011 in Washington, about a deal being reached to raise the debt limit.
President Barack Obama speaks from White House briefing room, Sunday, July 31, 2011 in Washington, about a deal being reached to raise the debt limit.
Photo by Associated Press /Chattanooga Times Free Press.

WASHINGTON (AP) — Ending a perilous stalemate, President Barack Obama and congressional leaders announced a historic agreement Sunday night on emergency legislation to avert the nation's first-ever financial default.

The dramatic resolution lifted a cloud that had threatened the still-fragile economic recovery at home — and it instantly powered a rise in financial markets overseas.

The agreement would slice at least $2.2 trillion from federal spending over a decade, a steep price for many Democrats, too little for many Republicans. The Treasury's authority to borrow would be extended beyond the 2012 elections, a key objective for Obama, though the president had to give up his insistence on raising taxes on wealthy Americans to reduce deficits.

The deal, with scant time remaining before Tuesday's debt-limit deadline for paying government bills, "will allow us to avoid default and end the crisis that Washington imposed on the rest of America," the president said in an announcement at the White House.

Default "would have had a devastating effect on our economy," he said.

House Speaker John Boehner telephoned Obama at mid-evening to say the agreement had been struck, then immediately began pitching the deal to his fractious rank and file.

"It isn't the greatest deal in the world, but it shows how much we've changed the terms of the debate in this town," he said on a conference call, according to GOP officials. He added the agreement was "all spending cuts. The White House bid to raise taxes has been shut down."

The House Democratic leader, Rep. Nancy Pelosi, was noncommittal. "I look forward to reviewing the legislation with my caucus to see what level of support we can provide," she said in a written statement.

Many economists have expressed concerns that the spending cuts could threaten an already feeble economic recovery. The first half of 2011 marked the worst six-month economic performance since the Great Recession officially ended in June 2009.

No votes were scheduled in either house of Congress before Monday, to give rank and file lawmakers time to review the package. Senate approval seems virtually certain; the House could prove more difficult.

Without legislation in place by Tuesday, the Treasury would not be able to pay all its bills, raising the threat of a default that administration officials say could inflict catastrophic damage on the economy.

If approved, though, a compromise would presumably preserve America's sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.

Even word of an impending deal earlier in the day by Senate Republican Leader Mitch McConnell of Kentucky sent U.S. stock futures upward. And before Obama had finished speaking, Japan's benchmark Nikkei index, opening Monday morning — at 8 p.m. Sunday on America's East Coast — was up 1.7 percent in early trading.

Not that the deal would end the political maneuvering. While eliminating the threat of default, it creates a remarkably short timetable for Congress to debate a huge and politically bruising deficit-reduction plan. The plan would require a committee of lawmakers to come up with $1.5 trillion more in deficit cuts from benefit programs or tax reform before Thanksgiving. Congress must vote on them by Christmas — or trigger across-the-board cuts that would hit the Pentagon and domestic programs.

Pending final passage, the agreement marked a dramatic reach across party lines that played out over six months and several rounds of negotiating, interspersed by periods of intense partisanship.

"Sometimes it seems our two sides disagree on almost everything," Senate Majority Leader Harry Reid said in floor remarks.

"But in the end, reasonable people were able to agree on this: The United States could not take the chance of defaulting on our debt, risking a United States financial collapse and a world-wide depression."

Vice President Joe Biden, who played an important part in this weekend's negotiations, agreed. He tweeted, "Compromise makes a comeback."

Not everyone felt that way.

"Someone has to say no. I will," said Rep. Michele Bachmann, R-Minn., a contender for the 2012 Republican presidential nomination.

Across the weeks, Boehner emerged as Obama's principal Republican antagonist in a contentious new era of divided government, yet struggled to corral his own rank and file at times.

At the end, though, McConnell and Biden, who looked on as Obama announced the deal, provided a negotiating channel to get the deal completed, overcoming a last-minute standoff over the impact of spending cuts on the Pentagon budget.

The plan calls for spending cuts and increased borrowing authority for the Treasury in two stages.

In the first, passage of the legislation would trigger more than $900 billion in spending cuts over a decade as well as a $900 billion increase in the government's borrowing authority.

The spending cuts would come from hundreds of federal programs across the face of government — accounts that Obama said would be left with the lowest levels of spending as a percentage of the overall economy in more than a half-century.

The increased borrowing authority includes $400 billion that would take effect immediately, and $500 billion that would be permitted after Congress had a chance to block it.

In the second stage, a newly created joint committee of Congress would be charged with recommending $1.5 trillion in deficit reductions by the end of November that would be put to a vote in Congress by year's end. The cuts could come from benefit programs such as Medicare, Social Security and Medicaid as well as from an overhaul of the tax code.

The committee proposals could trigger a debt limit increase of as much as $1.5 trillion, if approved by Congress. But if they do not materialize, automatic spending cuts would be applied across government to trim spending by $1.2 trillion.

Social Security, Medicaid and veterans' benefits would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.

The deal marked a classic compromise, a triumph of divided government that would let both Obama and Republicans claim they had achieved their objectives.

As the president demanded, the deal would allow the debt limit to rise by enough to tide the Treasury over until after the 2012 elections.

But Obama's request to extend the current payroll tax holiday beyond the end of 2011 would not be included, nor his call for extended unemployment benefits for victims of the recession.

Republicans would win spending cuts of slightly more than the increase in the debt limit, as they have demanded. Additionally, tax increases would be off limits unless recommended by the bipartisan committee, which is expected to include six Republicans and six Democrats. The conservative campaign to force Congress to approve a balanced-budget amendment to the Constitution would be jettisoned.

Congressional Democrats have long insisted that Medicare and Social Security benefits not be cut, a victory for them in the proposal under discussion. Yet they would have to absorb even deeper cuts in hundreds of federal programs than were included in legislation they had advanced in the final days before an agreement was reached.

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Selah said...

Where are the cuts going to take place? And how is govt. going to function when an agreement on income coming in hasn't been reached? How many more jobs have to be cut? How many more middle class citizens have to lose their jobs so that the real picture of a recession is ran across the TV?

August 1, 2011 at 5:37 a.m.
EaTn said...

Our federal government is obviously broken so the states will now get the opportunity to rightfully govern. Oh wait, the state governments lifelines are directly tied to DC just like a house of cards.

August 1, 2011 at 6:48 a.m.
timbo said...

Selah.....always a good little socialist . Wimped out again on fixing the debt problem. We are finished. I guess we don't have any way out now. Probably did not anyway. I guess you idiots can keep your government jobs and entitlements until the money runs out. It is amazing you people just don't get it.

August 1, 2011 at 7:39 a.m.
twharr said...

This is all about political theatre for the GOP and DEMs. I have a dream that one day we "authentic" Americans rise up against the machine. We are being held captive by our state and federal governments. They are destroying our environment, incomes and traditions. I'm no neo-con or lib; I'm the silent-independent-majority. I speak out when it's time to speak out and now it's time.

To all Americans (black, white, hispanic or asian) we need to make a stand for what is right and not get polarized by the media. They want us divided...they want us to be spoon fed...they want us to be angry with one another. What they don't want is for us to be united. Us being united lowers dividends...it injects the machine with a vaccination. I beg you my fellow Americans to rise against the machine. We owe it to ourselves and our children. I don't want to be known as the generation who did nothing.

August 1, 2011 at 8:53 a.m.
Facts said...

The US was never going to default. The government was possibly headed for a shutdown. But, the word "default" sounds much more omninous so the stupid public and politicians who were sucked into the fearmongering universe and are still not supporting the one thing that will end this crisis. Stop spending.

August 1, 2011 at 9:13 a.m.
ITguy said...

You may want to check out this link. The poorer the state, the more federal spending. We are getting a pretty good deal. More money flows back into Tennessee than we send to Washington.

http://visualizingeconomics.com/2010/02/17/federal-taxes-paidreceived-for-each-state/

August 1, 2011 at 10:58 a.m.
mymy said...

I have heard this Deal described ad A Sugar Coated Satan Sandwich. The more I heard about it the more I agree. I vote NO! Better to take our lumps now than down the road which will be worse.

August 1, 2011 at 12:52 p.m.
onetinsoldier said...

Every drop of water, every volt of electicty, and every road you drive on was built by Democrats. Americas safety net was built by Democrats and without it Chattanooga wouldn't exist. Hopefully when the citizens here realize that they have been taken for a downhill ride with the conservative agenda they will revolt. I don't hold out much hope though until the people of Chattanooga get it through their heads that jesus wasn't a republican and would condemn the the party of money changers.

August 1, 2011 at 1:05 p.m.
ITguy said...

L4F, it has everything to do with us. The state of Tennessee currently receives $1.27 back from the feds for every $1 that we send to Washington. If the feds cut spending enough to balance the budget, we can expect to see a lot more layoffs at the state level. This will effect all of us. I don't know what business you are in, but ask your CFO what would happen if your sales dropped by 21%

August 1, 2011 at 1:10 p.m.
mymy said...

I forgot to say I would vote no for different reasons than the one that made this description of The Deal, of course. It came from the left.

August 1, 2011 at 1:11 p.m.
macropetala8 said...

I said it once and I'll say it again. All of you GOP Tea Party followers are being had, hoodwinked, bamboozled! The chart below shows who many times the debt ceilings have been raised and which party raised the debt highest/Especially note how often Ronald cowboy-movie star Reagan raised the debt ceilings:

Kennedy raised the debt ceiling 4 times for a total increase of 5%. Johnson raised the debt ceiling 7 times for a total increase of 18%. Nixon raised the debt ceiling 9 times for a total increase of 36%. Ford raised the debt ceiling 5 times for a total increase of 41%. Carter raised the debt ceiling 9 times for total increase of 59%. Reagan raised the debt ceiling 18 times for a total increase of 199%. George H.W. Bush raised the debt ceiling 9 times for a total increase of 48%. Clinton raised the debt ceiling 4 times for a total increase of 44%. George W. Bush raised the debt ceiling 7 times for a total increase of 90%.

August 1, 2011 at 2:52 p.m.
rolando said...

And that has what to do with the fact that our government on both sides of the aisle has been screwing us for decades, macro?

Evidently, you like being bent over and are ready to take it again....

August 1, 2011 at 5 p.m.
rolando said...

The question still remains...does Boener have the votes?

There is no deal until the votes are counted, regardless of what our Communist-in-Chief says.

August 1, 2011 at 5:01 p.m.
macropetala8 said...

And that has what to do with the fact that our government on both sides of the aisle has been screwing us for decades, macro?

well, rolly, hasn't the GOP and their diehard followers being screaming the loudest against raising the debt ceiling to help balance the budget? Yet, it's been proven they're the ones likely to raise it the most often and highest? It's the GOP who promise smaller government, yet the federal government has actually grown under their leadership? They've pound the tables, the walls and their *&^ against everything President Obama and his administration has attempted to accomplish. Then they'll go on to do the very things, and then some, they claim to be so strongly against.

August 1, 2011 at 6:14 p.m.
BigDonL said...

Cut spending. Raise revenue. Its too easy. They are all a bunch of wimps.

August 1, 2011 at 11:09 p.m.
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