A Toothless Debt Deal Won’t Stop a U.S. Credit-Rating Downgrade – Or the Aftermath that Follows

It's often said that the sign of a good compromise is that both parties walk away dissatisfied - but that's not necessarily true of the debt deal Congress is close to passing. To be sure, both parties are dissatisfied with the outcome of this contentious battle. Progressive Democrats are disappointed that planned cuts to government spending won't be augmented with tax increases, while fiscally conservative Republicans are angry that the cuts to spending haven't gone far enough. But the truth is, regardless of their party allegiances, all Americans should be disappointed in their policymakers for the same exact reason: After months of political kabuki theater, the debt deal that's working its way through Congress is toothless, ineffectual and will do little or nothing to prevent a crushing blow to the markets and the dollar. The facts of the debt deal are as follows: The deal raises the debt ceiling by $900 billion to $17.7 trillion. It cuts spending by $917 billion over the next decade and a special congressional committee will be assigned to find another $1.5 trillion in deficit savings by late November. If Congress comes up with the savings, or passes a balanced-budget amendment to the constitution, the government will accrue another $1.5 trillion boost the debt ceiling - sufficient to pay the country's bills through 2013. If Congress fails, the president will be granted a $1.2 trillion debt-ceiling extension - but automatic, government-wide spending cuts (half of which will come from the defense budget) will take effect in 2013. There will be no automatic tax increases. The United States at least may have will have avoided default, but the country is still enrapt in debt and likely to incur a credit-rating downgrade. To continue reading, click here ...