Monday, August 1, 2011

The Mechanics of the Debt Deal and the Scam that It Is

From the Fact Sheet released by White House:

  • Immediately enacted 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; balanced between defense and non-defense spending.
  • President authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013.  
  • Bipartisan committee process tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform. Committee is required to report legislation by November 23, 2011, which receives fast-track protections. Congress is required to vote on Committee recommendations by December 23, 2011.
  • Enforcement mechanism established to force all parties – Republican and Democrat – to agree to balanced deficit reduction. If Committee fails, enforcement mechanism will trigger spending reductions beginning in 2013 – split 50/50 between domestic and defense spending. Enforcement protects Social Security, Medicare beneficiaries, and low-income programs from any cuts.     
As I have posted below, it should be noted this "reduction" in the deficit is against an accelerating baseline that will result in an increase in the deficit of $7 trillion plus over the next 10 years. Further, the baseline doesn't take into consideration the likelihood that interest rates will be much, much higher. Finally, the "bipartisan committee" tasked with identifying an additional $1.5 trillion in deficit reductions, including from entitlement and tax "reform", is  a super-Congress.

Bottom line: The deficit deal is about smoke, mirrors, growing government and Ben Bernanke being required to print trillions in new money.


  1. Nice analysis! Not only are the interest rate assumptions ridiculous, they assume unrealistic gdp growth rates and they don't factor in the next depression, which is due in a couple of years.

    I'm betting they will hit the new debt limit next year before the election.

  2. I can't imagine the Tea Party members in the House signing up for this...but principle and politician are antonyms in my dictionary, so silly me.

  3. Yep. $2.4T worth of QE3 = great time to own precious metals.

  4. @ Anonymous (August 1, 2011 9:51 AM)

    You actually thought they believed in small governments???

    What's the saying... "Fool me once, shame on you. Fool me twice..."

  5. Maybe NOW people will start to understand the inherently flawed nature of federalism, and that central planning just doesn't work, and it can't be fixed.

    Because of this and other Washington fiascos, more and more people are going to be considering decentralization as the only real solution.

  6. @Scott Lazarowitz

    Federalism IS decentralization. The founders established a dual (and at times duel) sovereigns system that split power between the States and the Feds.

    Only over time did the Feds usurp that State power for itself through steady erosion of that system. I'd say you're confusing federalism with federalization, which has happened to everything nowadays.

    We need to return to federalism, not avoid it.

  7. @Scott,

    I don't think they'll have a choice. The fed gov is too top heavy. It is going to collapse, and decentralized government is all we'll have left.

    I hope.

  8. @anonymous 11:40:

    Federalism includes a federal government. ANY federal, centralized government will lead to what we have now. Get rid of it completely!

  9. The new deal is relying on the tax cuts expiring at the end of 2012. So the "spending cuts" are even more pathetic than they appear.