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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Washington's Math Adds Up to the Debt Ceiling Deadlock

Politics / US Debt Jul 28, 2011 - 08:07 AM GMT

By: Money_Morning

Politics

Best Financial Markets Analysis ArticleDavid Zeiler writes: If you've been wondering why your elected officials in Washington can't reach a basic compromise to break the debt-ceiling deadlock, consider this: They can't even get their numbers straight.

Not only do the competing Democratic and Republican plans differ on what counts as a spending cut, the Congressional Budget Office (CBO) has disputed numbers in both plans.


Perhaps most galling - fiery rhetoric to the contrary - is that the plans actually differ very little.

With "Washington Math," there's no such thing as a definitive answer.

Congress has until Aug. 2 to raise the federal debt ceiling beyond the $14.3 trillion limit; after that the government won't have enough money to pay 40% of its bills. But the fuzzy numbers, questionable arithmetic and political posturing have created an impasse that threatens to push the United States over a financial cliff.

What do we mean by fuzzy numbers? Read on.

Senate Majority Leader Harry Reid, D-NV, has proposed a plan that would save $2.7 trillion over 10 years, raising the debt ceiling by the same amount. That would allow the United States to borrow until 2013.

But Speaker of the House John Boehner, R-OH, has dismissed half of Reid's package - the $1.1 trillion in savings from winding down the wars in Afghanistan and Iraq - as imaginary.

"The Senate is struggling to pass a bill filled with phony accountingand Washington gimmicks," Boehner said Monday night in his response to the primetime speech made by U.S. President Barack Obama.

Boehner's own plan was supposed to save $1.2 trillion over 10 years and raise the debt ceiling far enough to allow about six months of borrowing.

The Democrats took no issue with any of Boehner's proposed savings, but on Tuesday the CBO did. The nonpartisan agency determined that Boehner's plan would in fact save only $850 billion.

It turns out Boehner's plan included savings from domestic agencies that Republicans had secured in a January budget fight.

Oops.

The CBO also deflated the Reid proposal, saying yesterday (Wednesday) that the plan would save $2.2 trillion - not the claimed $2.7 trillion.

And neither plan does much to cut the budget in the short term, despite all the huge numbers being thrown around. The Democratic plan would save only $30 billion from next year's budget; the Republican plan, a mere $5 billion.

The maddening part of this dangerous debate is that if you put the war savings aside, the discretionary cuts in each plan are about the same: $850 billion for the Boehner plan, close to $900 billion for Reid's plan.

In other words, the debt-ceiling deadlock is mostly about what counts as a cut and what doesn't.

"In Congress, a cut is often whatever the Congressional Budget Office says it is," writes Ezra Klein in The Washington Post. "Boehner's dollar-for-dollar demand thus set up an odd dynamic in which Democrats wrote their package in such a way that CBO said it had lots of cuts, and Republicans wrote their package so that CBO couldn't see some of the cuts. What was perhaps less expected was that the two sides would write almost identical packages."

There you have it.

Washington Math never adds up - even when it does.

[Editor's Note: If you're looking for the very best insights on Washington's debt-ceiling debacle - especially if you want recommendations on the investment moves you can make to protect yourself and even profit - check out our special report, "Money Morning's Debt-Crisis Survival Guide," which features the best of our news, analyses and investment recommendations.]

Source :http://moneymorning.com/2011/07/28/...

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