Today's Coming Crisis Movie

Friday, July 29, 2011

Debt Deal or no debt deal, pain is coming to America

f warring politicians in Washington are somehow able to join hands in a rousing verse of debt-ceiling kumbaya, Pennsylvanians might be tempted to breathe a collective sigh of relief.

But experts say that even if the government can strike a deal to prevent the nation from defaulting on its debt before the money runs out Tuesday, no one should feel too comfortable. Deal or no deal, pain is coming.

"No matter what, we're looking at severely reduced spending on the federal level," said Michael Wood, research director at the Pennsylvania Budget and Policy Center. "There's no way that can't affect all of us in some way."

For now, it's unclear who has reason to be most worried, but experts say it's difficult to envision federal spending cuts of more than $1 trillion that don't reduce subsidies to education and programs for senior citizens and low-income people.

Competing plans by House Speaker John Boehner and Senate Majority Leader Harry Reid each claim to cut federal spending by roughly $1 trillion over the next 10 years.

It is most certainly a case of pick your poison, experts say, but most say an actual default would be more damaging. Because the federal government spends more money than it takes in, it borrows money to meet all of its spending obligations. In the past, when its credit limit was reached, Congress simply approved a higher limit, allowing the government to keep borrowing and enabling it to keep paying its debts.

But after 74 consecutive routine debt limit increases since 1962, Congress this year said no more credit increases until spending is reduced. The debt capacity runs out Tuesday and analysts fear that when that happens, the government AAA credit rating will be downgraded. (more)