Wednesday, August 03, 2011

Debt Deal Winners and Losers

If you're like me, you heard a lot about the 'Debt Ceiling Deal', both before and after it was made.  The Democrats, led by President Obama, wanted over a trillion dollars in tax increases, the Republicans wanted no tax increases and more spending cuts, and there were all sorts of negotiations to determine how it would all go down.  At one point, the President had Boehner agreeing to 800 billion in tax hikes, but his insistence on an extra 400 billion, boosting the total tax tally to 1.2 trillion, cost him the entire agreement, and in the end, there were no tax hikes at all in what ultimately was agreed to. 

However, what many people likely dont realize is, there weren't any actual spending cuts either.  What they're calling spending cuts are actually just them agreeing to raise spending slightly less than they already planned to.  Imagine for a moment you spent 1000 dollars at your favorite restaurant last year, but this year you had some extra bills to pay and you needed to save some money to make sure you had enough money to cover them.  Therefore you decide spend less at your favorite restaurant, you'll only spend.....1800 this year, instead of the 2000 you planned to spend.  Normal folks call that a major spending increase, but in Washington they'd call that a big cut.  Thats what the Washington politicians did with this 'Debt Ceiling Deal', they all agreed to spend WAY more money, and incur WAY more debt, and call it a big spending cut! 

Certainly from a purely political standpoint, the Republicans and the Tea Party were really big winners, because they got their pretend spending cuts without any tax increases, and because it does at least slightly lower what Washington 'would' have spent over the next 10 years.  They totally outnegotiated Obama and the Washington Democrats, and for that they get to claim the big win.  However ultimately this deal gave the President the authority to defecit spend over 2 TRILLION more dollars on top of the trillions he had already defecit-spent, which will of course hurt the economy further.  Folks in Washington always look at things completely backward, they say 'If you cut spending, it'll hurt the economy', when in reality Washington over-spending is hurting the economy, and the more you cut the spending, the better the economy will be.  The less money there is in Washington, and the more money there is in the free market, the more the economy will grow. 

So ultimately from a political standpoint, the GOP won, the Tea Party won, and Obama and the Washington Democrats lost.  But the biggest losers are the American People, who will now have  to suffer from a weaker economy and over 2 trillion dollars in more debt.  There is now serious talk of a possible 'Double Dip' Recession coming, and of course the liberals will once again say that means we need more Washington spending to fix it.  In reality, you can't solve the problem of being drunk by drinking more, and you can't solve the problem of over-spending by spending more.  We need to cut spending and balance to budget, if we do that the economy will no doubt recover in a big way!  Here's hoping that Washington figures that out, and soon.      

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