Obama Loses with Debt-Ceiling Deal, Credit Downgrade Still Likely

Filed in Gather Business News Channel by on August 1, 2011 0 Comments

The debt ceiling deal reached between Democrats and Republicans will not likely alter an impending credit downgrade, nor will it help President Obama and his re-election campaign.

The details of the deal haven’t been released, but it is reportedly to be done in two stages. The first debt-limit increase would be $900 billion (with the Treasury gaining access to $400 billion more in additional borrowing), with another $500 billion coming later this fall. Still, that doesn’t mean the government will escape a credit downgrade. Executives at the large investing firm, PIMCO, believes that a downgrade is still forthcoming.

President Obama’s adamantly demanded that any deal would be “balanced” with spending cuts and tax increases. But Obama backed down, and it will likely cost him in the next election:

  • The debt-ceiling includes no guarantees that tax increases will be part of the equation. Indeed, Obama was angling for new taxes on the rich, and he never got them.
  • Medicare cuts will accelerate into the next decade. This is a blow to Obama—what if the now-impending Obamacare gets blown apart in the same way? This will also hurt him in the upcoming election. The Progressive Change Campaign Committee have circulated a petition that has been signed by more than 200,000 people who promised not to donate to him in 2012 if he agreed to cuts in either Social Security, Medicare or Medicaid benefits.
  • The Tea Party is gaining clout. They forced the terms of the argument by holding House Speaker Boehner to stricter fiscal terms than he wanted. That said, the Tea Party has also alienated many independent and centrist voters by nearly bringing the country to a state of bankruptcy.

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