In the end, on the very day the government’s ability to issue new debt was about to bump into that ceiling, Democrats and Republicans held their noses and signed on to a compromise to raise the debt ceiling.  In the voting, the Senate went for it 74 to 26, after the House of Representatives had first voted 269 to 161. Voting against it were some of the most conservative senators and congressmen, as well as some of the most liberal ones. After the Senate vote, President Barack Obama signed it into law on Tuesday, just ahead of the moment the US could no longer issue new bonds to finance obligations. The new law sets increases in the federal debt ceiling sufficiently so it will not be fought over prior to the 2012 election, but holds the line on taxes and promises to cut some $2 trillion from federal spending over the next decade.

Putting a game face on in response to what both left- and right-wing commentators have already ruled a defeat for the Obama administration, the president declared this legislation an “important first step” in ensuring the US government can live within its means, even as it precludes “cutting too abruptly while the economy is still fragile”.

Obama then plumped for a new wish-list, including tax code reform “so that the wealthiest Americans and biggest corporations pay their fair share” and asked Congress to take those traditional “bipartisan, common-sense steps” for job creation and economic growth, such as an extension of tax cuts for middle-class families. He called for patent reform, congressional passage of trade deals with Asian and Latin American countries and an “infrastructure bank” to put construction workers and projects together.

Almost immediately edging away from the new measure, Obama added, “We can’t balance the budget on the backs of the very people who have borne the biggest brunt of this recession”. Pushing for tax changes for the wealthy and corporations, he added, “Everybody is going to have to chip in. It’s only fair.” But given the way this round has been scored, it seems unlikely he will get his wish, as long as Republicans hold the lower house of Congress and have their ideological core firmly rooted in the Tea Party’s view of things.

Despite the media frenzy, in some ways this has been an artificial crisis – even though it really did threaten the stability of the country’s credit rating and just about everything else worldwide. US tax rates currently are among the lowest of the OECD countries. Despite this, and in the face of economic doldrums ripe for some old-fashioned, Keynesian-style stimulus efforts, under pressure from the Tea Party wing of their party, Republican leaders held fast in their refusal to countenance any tax increase, no matter what, no matter how small, and they linked an increase in the debt ceiling to an insistence on cutting expenditures. In effect, they were prepared to gamble with the “full faith and credit” of the US government and a wobbly-kneed economy to have their way with Medicare hospital reimbursement rates.

The still-falling stock market has yet to voice any optimism about the deal, and voters told pollsters they were distinctly unimpressed as well. In a Washington Post-ABC News poll just before the deal was clinched, 37% said they now see the president less favourably than before while 18% now viewed him more favourably. Republican Speaker of the House John Boehner came off even worse with about three times as many saying their opinion of him had deteriorated as opposed to 11% seeing him more favourably. And of the deal itself? Almost three-fourths gave it thumbs down. Asked for a one-word description of the mud-wrestling, the most frequently used words were “ridiculous,” “disgusting” and “stupid.” Only 2% had a good word for it.

Still other polls say about the same number of Americans are hoping for tax cuts as are looking for job creation spending. With the 2012 election just around the corner, by staring deeply into these poll results, it is just possible to argue that conservative Republicans have now overreached on their ambitions and that the Obama administration may find a way back into the affections of the country – and most especially with independent voters – but only if the unemployment rate can be pushed back down by the coming year. DM

For more, read:

• Senate passes debt-limit bill in The Washington Post;
• Debt-limit bill passed, on its way to Obama on AP;
• Stocks slump as concerns about economy grow on AP;
• Senate Passes Debt Plan to Avert Default in The New York Times;
• Mutually Assured Revulsion: Why Americans Hated the Debt Debate and Why It’s Not Going to Change in Time;
• The debt ceiling deal – Nuts and bolts in The Economist;
• What Were They Thinking? in the New York Review of Books.
• Hiding Behind the Budget Act in the New York Times (an editorial)

Photo: U.S. President Barack Obama signs the Budget Control Act of 2011 in the Oval Office at the White House in Washington, August 2, 2011. REUTERS/Pete Souza/The White House/