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Sunday, April 10, 2011

Shutdown Battle Only The Start

The battle over the U.S. budget has ended. Now the war begins.

The debate over this year's budget that took the U.S. government to within an hour of a shutdown is only a dress rehearsal for bigger spending clashes to come.

Within weeks, the government will bump up against the limits of its borrowing authority and will require congressional action to avoid a debt default that would roil financial markets.

At the same time, Republicans in the House are targeting bigger game in their budget plan for the next fiscal year, which starts Oct. 1.

Their proposal would slash taxes and overhaul Medicaid and Medicare, government-run health programs for the poor and elderly. It is likely to be rejected by the Democratic-controlled Senate, setting up another showdown between the two chambers.

That fight could last well into the 2012 campaign season, when President Barack Obama, one-third of the U.S. Senate and the entire House will face voters.

The budget deal agreed on Friday, if it passes Congress next week, would amount to the largest domestic spending cut in U.S. history.

That's a victory for Republicans who won control of the House in November on a promise to scale back the government and take a bite out of recession-bloated budget deficits that have hovered around 10 percent of GDP in recent years.

But the size of that cut, $37.8 billion, is less than the amount the federal government spends in four days.

Even as the government stood on the brink of a shutdown markets largely shrugged, because the Treasury Department still would have been able to issue and service debt.

Investors will be watching the next fight more closely.

Treasury Secretary Timothy Geithner estimates the government could hit its current debt limit of $14.3 trillion by mid-May and has warned failure to raise it would be "catastrophic." Treasury could employ a variety of tricks to avoid defaulting for several weeks, but eventually it would run out of options.

An increase of at least $1 trillion is needed to keep the government running through the end of fiscal year on Sept. 30, according to a Reuters analysis. To last until the November 2012 election, the increase would need to be well over $2 trillion.

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3 comments:

  1. Yes, let's make sure we focus on winners vs losers. A novel suggestion: how does America benefit as oppposed to keeping score among the parties.

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  2. Wasn't it the Tea Party Sarah Palin who was all over the Obama healthcare plan as Granny's death squad? What again is the Tea Party and Republicans doing with Medicare?

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  3. Ha, wait until 2012 3:43 comment: We are going to rock n roll the Democrats out of Office and those Republicans who back liberal wack jobs like yourself. I am glad this year is moving quick b/c you are off the Pogo-Stick in 2012 BABY!

    The South will rise again. YeeHaa

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