Compromise.

There's compromise in the capitol.

The leadership of both parties have reached a consensus with the President in the debt ceiling standoff. The signing process came to a close Tuesday afternoon.

What did the two parties walk away with?


Democrats-
1) The debt ceiling increases will cover U.S. spending through 2012, which prevents it from becoming a 2012 election issue.
2) Medicare, Social Security, and Medicaid are off the table.


Republicans-
1) Cuts...and cuts larger than the debt ceiling increase, at that.
2) No new revenues.


Let's go a little further in-depth as to how this deal will work out.

First, the debt ceiling would be raised by nearly $1 trillion, accompanied by spending cuts.
Then, a congressional "supercommittee" of twelve, containing 3 members of each party from each house of Congress, would be assembled, with the goal of recommending another $1.8 trillion in deficit cuts by the end of November.

If this supercommittee fails to yield results, Congress would then have to vote on a constitutional balanced budget amendment.

If that amendment fails, then an automatic $1.2 trillion in triggered cuts would kick in, affecting both the Pentagon and domestic discretionary spending like Medicare equally.

The thought of cutting defense at all makes many Republicans cry.
Democrats tear up at the thought of cuts to Medicare.
I guess that's a strong incentive for this supercommittee to do some actual work and identify cuts as needed.

Another point worth mentioning is that many of the cuts are backloaded, taking place toward the end of the 10-year window in discussion. Just to show you, not even $30 billion was hacked off of the first year of these projections.

The far left and far right wings are both dissatisfied with the deal, and for different reasons.

The left because they feel like they got rolled by the Tea Party. There was no clear increase in the government's capacity to borrow as they wanted.
The right because they don't feel there were enough cuts, and entitlement reform was left out of the equation. Some also voted against the bill because they refused to increase the debt ceiling without a balanced budget amendment. Period.

What's my opinion on the whole thing?
Am I happy with the deal?

Entitlement reform kind of got kicked down the road, so I'm a bit annoyed by that.
But the conversation has been brought in the right direction.
Borrowing $0.42 out of every dollar that we spend is not sustainable.
Some cuts are going to be necessary.
Most people would agree with that.


Not Paul Krugman.
I almost spit out my drink when I heard him say that we should not be making any cuts AT ALL.
Really?

He didn't say, "Indiscriminate cuts may harm the economy."

My mind is officially blown.
Liberal academia screams one thing and S&P screams almost the total opposite.

Even with these cuts, the US may still lose its sterling AAA bond rating anyway.
And only in Washington can they talk about $2 trillion in cuts while failing to mention that it is all in the context of a budget baseline that is assumed to increase by 8% or 9% every year.
Think about that.

Before I close, I'd just like to go back to the balanced budget amendment.
Some argue against it and consider it unwise to place such restrictions on our government.

If fiscal conservatives can't gather enough support for a BBA, consider tweaking with it a bit in order to get the necessary support.

For example, instead of mandating a balanced budget every year, mandate that deficit spending isn't allowed to go over by more than a given percentage of the budget each year. That allows for some flexibility, but would put some kind of restrictions on how and how much our government spends, and would certainly help to put a cap on runaway spending.

Hey, a watered-down version of what you seek would work better than trusting politicians to keep our books in the black. At least I think so.

Raising the debt ceiling needed to be done, but Washington still has a lot of work to do.