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We All Lose With the Debt Deal

America just avoided a massive global economic meltdown with the debt ceiling deal, passed by Congress yesterday. In the end a “grand compromise” by the House, Senate, and president managed to hold off calamity.

But compromise in this instance shouldn’t be seen as a win for all parties. Instead, everyone – the Republicans, the Democrats, the president, and the American people – all lose in the current deal.

The negotiated package does nothing to solve the debt problem, only putting it off for future leaders to decide. And when it comes time for these leaders to make another debt ceiling bill, America will be in the same place it is now, financially and politically. No progress has been made.

We have only created a lasting problem.

History buffs will remember another moment when American leaders put off a concrete decision on an equally venomous issue – the Compromise of 1850, which delayed action on slavery and led to an escalation of political hostilities a decade later with the Civil War. Secession is, of course, no where on the table today, but the "passing the buck" theme should not be ignored in the "grand compromise" of 2011. 

Yesterday’s deal raises the debt ceiling by $2.1 trillion, forcing the next debt debate to happen shortly after the 2012 elections. There will be $917 billion in cuts over 10 years, and the bill tasks a bi-partisan committee to find $1.5 trillion additional reductions over the next year. If no reductions are agreed to by this committee, automatic cuts will make the decision for them.

All parties involved in this debate have lost face. Americans were overwhelmingly disgusted in the “negotiations.” The bickering between Republicans, Democrats, House and Senate leadership, President Barack Obama, and the Tea Party has left a sour taste in people’s mouths which will remain through the 2012 elections. Our “leaders” acted like a Kindergarten class during recess after a missed nap time.

The Tea Party? What happened to their grand budgets on deficit reduction? They just sat on the sidelines and refused to show real leadership. 

Political unity and compromise also lost in this debate. The Republicans clearly got what they wanted (98% of it, actually). The newly-formed bi-partisan committee shouldn’t be expected to come to compromise. The Gang of Six, the last bi-partisan team to handle the debt issue, failed to present a realistic solution to ease the crisis. When this new committee again fails to make critical decisions and the enforcement mechanism (see: automatic enforcement cuts) begins cutting the deficit for everyone, we will have ceded political control of the debt negotiations to a robotic system, not democratic leaders. Fail, democracy.

Fiscally we are … well, you know. America will still have massive debt issues when the next deadline comes around. The current deal in no way pays off our $14 trillion owed. An optimist perspective would be that, in the current market, we will be capitalizing on tiny interest rates close to 0%. As such, we would take out more debt at a lower interest rate to pay off past debt, which can have as high as 10% interest. But this in itself only compounds the problem, as we continue to add to our overall debt.  

The argument could be made that, in a year from now, the economy would have significantly rebounded and we would have an influx of cash to handle the crisis differently. We should not bet on a strong fiscal situation. The on-again, off-again market is finicky and combustible, and the fact that economic forecasters have pessimistically reevaluated the strength of our economy shows that we can not count on a robust economy in the lead-up to the next deadline.

So, with our politics and economy stagnant, and with no real progress made in either realm, no side should claim that they came out on top in this political fiasco.

The biggest loser, though, is the American people. 

When they asked for a smart compromise to this debacle, our leaders only gave them more worry. We all lost in this debate.

Photo Credit: jamesomalley

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