Wednesday, May 04, 2011

Update on Debt Ceiling Charade

by Bill McBride on 5/04/2011 09:10:00 PM

The WSJ has an update on the charade: GOP, White House Talk Deal on Debt

GOP leaders and the White House are discussing a deal that would enact strict deficit targets and some spending cuts ... The deal would defer contentious decisions about Medicare, Medicaid and taxes until after the 2012 elections.
Targets that would aim to bring the deficit below 3% of gross domestic product by 2015 ...
I find this amusing. First the current CBO projection shows the deficit at 3% of GDP in 2015 - so this is a big yawn, plus a future congress can change the rules. Of course the 3% includes the expiration of the tax cuts at the end of 2012, but that just means another battle after the election. (Note: the tax cuts were really "tax shifts" since they shifted the burden to future taxpayers).

Of course there is a huge battle ahead over the budget for the next fiscal year (the fiscal year starts on October 1st), but the debt ceiling debate is all a charade - although it allows Congress to force Treasury to do some extra work. The only smart vote would be to eliminate the debt ceiling vote in the future, and let the annual budget process automatically set the debt limit. But then there wouldn't be as much camera time ...

ISM Non-Manufacturing Index indicates sharply slower expansion in April
ISM Indexes and BLS Payroll Employment