Finally – The House, Senate, and White House Agree on A Debt Deal

by Justin Weinger on July 31, 2011

After months of posturing and finger pointing, it appears that the Republican led House, the Democratic led Senate, and the White House have finally come to an agreement on raising the debt ceiling and slashing Federal spending, just days before the country was due to run out of its money.  Assuming the deal passes Congress, it will keep the United States out of default — for the time being, at least — which likely would have had catastrophic consequences across the globe.

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The Age of Greed by Jeff Madrick talks about how America gambled on greed - and lost.

And, true to form, there’s no guarantee that this seemingly agreed upon deal will pass both houses of Congress, which just goes to show how dysfunctional Washington has become and why much of the country is livid with their representatives.

That being said, for the time being here are the particulars, according to an article entitled “White House, Congressional Leaders Reach Debt Deal,” written by Alan Silverleib and Tom Cohen of CNN.com:

The proposed $3 trillion deal, which still requires congressional approval, brought some immediate relief to global markets closely watching the situation play out and a nation filled with anger and frustration over partisan political wrangling that threatened further economic harm to an already struggling recovery.

According to [Senate Minority Leader Mitch] McConnell and other congressional and administration officials interviewed Sunday, as well as various sources who spoke to CNN on condition of not being identified, the deal under discussion would be a two-step process intended to bring as much as $3 trillion in deficit reduction over 10 years.

Some sources provided differing targets for the total, ranging from $2.4 trillion up to $3 trillion.

A first step would include about $1 trillion in spending cuts while raising the debt ceiling about the same amount. The proposal also would set up a special committee of Democratic and Republican legislators from both chambers of Congress to recommend additional deficit reduction steps — including tax reform as well as reforms to popular entitlement programs such as Medicare and Social Security.

The committee’s recommendations would be put to a vote by Congress, without any amendments, by the end of the year. If Congress fails to pass the package, a so-called “trigger” mechanism would enact automatic spending cuts. Either way — with the package passed by Congress or the trigger of automatic cuts — a second increase in the debt ceiling would occur, but with an accompanying congressional vote of disapproval.

In addition, the agreement would require both chambers of Congress to vote on a balanced budget amendment to the U.S. Constitution. Such an amendment would require two-thirds majorities in both chambers to pass, followed by ratification by 38 states — a process likely to take years.

At this point, it would be political suicide for all parties involved if this bill did not pass and was not signed into law.  As I said before, much of the country is upset with how long this has taken and the extreme partisanship with which the process took place, so if something were to happen and the deal fell through, I think most elected members of Congress should expect a change in career path.

When you consider the possible financial ramifications of not raising the debt ceiling — the U.S. losing it’s AAA credit rating, a possible spike in interest rates and rapid decline of the dollar, and the stress caused to the world financial markets — raising the debt ceiling is a no-brainer and absolutely should not have come to this.

Keep your fingers crossed that Congress does the right thing and passes the bill and then follows through on their pledge to get our financial house in order.

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