Monday, August 1, 2011

And We Have a Deal?

So a deal has been reached on the debt ceiling and the federal budget (for now). Will it lead to hell on earth? The Obama Administration says no.

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And here is President Obama speaking for himself.

So are they correct? Well, it's complicated. Pimco CEO Mohamed el-Erian and Former Biden Staff Economist Jared Bernstein point out the obvious that the last thing we need right now is divestment in our economy. And yes, federal budget cuts amount to divestment, since these mean less money for research and development, less funding for at least some parts of the social safety net, and less funding for infrastructure repairs and development.

So yes, this deal sucks. However, it may not actually lead to hell on earth. Ezra Klein notes all the problems just waiting to rise to the surface with this deal, which pretty much is in agreement with what el-Erian, Bernstein, and other economic policy wonks have noted. However he also notes some hidden gems, such as keeping the Bush tax deals on the table and preserving the fundamentals of Medicaid & Social Security. (Medicare beneficiaries shouldn't see cuts any time soon, but there may be problems in the future over negotiations on possible provider cuts.)

So what does this mean? Basically, expect an even tougher climb to economic recovery for now... But do continue to hope for recovery, as debt default would have meant a total end to that. Do feel disappointed over what's happening, but don't set your hair on fire and call President Obama a ruthless Republican (and expect me or anyone else reality based to take you seriously).

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