This is a short diary but there are things that need to be added to the debate about the competing plans in the House and the Senate and what the President is advocating as well.
John Boehner Debt Ceiling Plan May Still Trigger S&P Downgrade: Report
WASHINGTON -- Minutes before House Speaker John Boehner delivered a prime-time address in which he framed his latest deficit-reduction deal as a silver bullet for the nation's economic uncertainty, reports surfaced that the plan being crafted by the Ohio Republican would potentially lead to a downgrading of the AAA credit rating of the United States.
It was a fairly bold selling of a plan that -- in terms of both the size of cuts and structural reforms -- fell far short of what the Speaker had been negotiating with the White House prior to those negotiations ending this weekend. It also was delivered with an unfortunate backdrop. Just minutes before Boehner spoke, CNN's Erin Burnett relayed word from her sources on Wall Street that the newest Republican plan would not satisfy the credit rating agencies, which have soured on the idea of a short-term solution to the debt ceiling debate. Rather, it was Senate Majority Leader Harry Reid's approach (padded by counting the savings from the drawdown of troops from Afghanistan and Iraq) that would calm their nerves.
"Really interesting this afternoon, when I was talking to an investor who had met with the ratings agencies at Standard & Poor, talking about the potential of a downgrade -- which by the way could raise interest rates the same way a potential default could -- and they said the Boehner plan probably wouldn't hit the hurdle to prevent a downgrade," she added. "Even if that deal was reached, you could still get a downgrade. It is unclear whether that would happen for sure, but that would be a real possibility. Whereas the Reid plan, even though a lot of the parts of that are seen by many as gimmicks, probably would pass that hurdle and you wouldn't get that immediate downgrade. That's an interesting distinction."
A down grade and a raise in interest rates of just 1% would be enough to increase the national debt more than any of the "cuts packages" being talked about now.
I'm not cheering the Dems on either as I still haven't forgotten what happened in the UK with their austerity program of cuts... it shrank the GDP and caused inflation and unemployment to spike up.
Nor have I forgotten the confidential letter from Goldman Sach's to its investors:
Goldman Sachs: House Spending Cuts Will Hurt Economic Growth
A confidential new report prepared by Goldman Sachs for its clients says spending cuts passed by the House of Representatives last week would be a drag on the economy, cutting economic growth by about two percent of GDP.
“Under the House passed spending bill [which cut spending by $61 billion],” says the report, which was obtained by ABC News, “the drag on GDP growth from federal fiscal policy would increase by 1.5pp to 2pp in Q2 and Q3 compared with current law.”
In short... these cuts if phased in too soon will shrink the GDP and cause inflation and unemployment to spike.
We should be spending now and cutting later as Krugman and other economists have advocated.
The rupugs are keen in quoting "business leaders are not spending in the economy because of uncertainty in economy" but Boneheads plan of fighting this fight over every six months will fail to do that.
What the GOP leaders don't say in their talking points is that industry leaders say the jobs go where the demand is and advocate a demand side approach for the US... not more radical cuts now.
President Obama's says his plan would phase in the cuts so as not to hurt the economy right now... but the $650 Billion in cuts to Medicare, Medicaid, and Social Security is a real stinker to sell, while Reids plan doesn't touch the big three at all but cuts more on the front end.
Hell of a situation!
The Credit Rating Agencies don't like the Beohner plan but neither do the traders evidently. Here is another diary just posted:
Video: Wall St. not liking GOP plan, Kudlow grills Cantor hard+*
by Alan Arizona