Posted on 05/29/2023 10:01:26 PM PDT by SeekAndFind
Late last week, we were the first to correctly summarize what the bottom line of the so-called "debt ceiling deal" meant for the US, for future generations of Americans, and for the ridiculous melodrama gripping Washington: a -0.2% of GDP cut in nominal spending.
Hey @mattgaetz, the debt ceiling deal "cuts" spending by 0.2% of GDP or about $50 billion.
Is that good enough? — zerohedge (@zerohedge) May 28, 2023
That's right: that 0.2% cut in spending is what all the brewhaha was over, a cut which will not only push total debt to $35 trillion by the end of Biden's term, but will not even put a dent in the long-term US debt trajectory which even the CBO has no problem as showing in its full, hyperinflationary glory.
Still, to Kevin McCarthy who "negotiated" on behalf of America's conservatives, that paltry, laughable nominal "spending reduction" was apparently something to be very proud of, as he repeatedly pointed out on his twitter feed...
It is simple:
- President Biden wanted to spend more and raise taxes.
- Republicans fought—and won—to reduce spending and stop Biden from radical overreach.
The systemic reforms we set in place mark the beginning of historic change in Washington. https://t.co/rjMNsSf5oX — Kevin McCarthy (@SpeakerMcCarthy) May 29, 2023
... if only a closer look reveals that not all is as it seems.
In its post-mortem of the debt ceiling deal published this evening, Goldman summarizes the outcome as follows: "the spending deal looks likely to reduce spending by 0.1-0.2% of GDP yoy in 2024 and 2025, compared with a baseline in which funding grows with inflation. That said, the boost to funding Congress approved late last year for FY23 was so large (nearly 10% yoy) that overall discretionary spending is likely to be slightly higher in real terms next year despite the new caps."
Translation: the "deal" may result in a nominal 0.1% drop in spending (just for next year, after that it ramps up again), but adjusted for inflation, spending in 2024 will be higher yet again!
Below we excerpt several highlights from the Goldman note, first focusing on the probability of the deal becoming enacted; according to Goldman, the deal is "very likely to pass both chambers of Congress in the coming week" although there are two points of uncertainty in the House.
... and second, why the so-called spending cuts are a joke:
The main source of budgetary savings in the deal is a two-year cap on federal discretionary spending. Congress appropriates this segment of spending annually and it accounts for around 25% of total federal spending, with slightly more than half dedicated to defense and the remainder to other "non-defense" spending (generally domestic programs outside of the major benefit programs). The Congressional Budget Office (CBO) will estimate that the spending caps in the deal will reduce discretionary spending by $1.5 trillion over the next 10 years and reduce interest expense by around $160-170bn over that period. On paper, this would reduce projected deficits over the next decade by an average of 0.4-0.5% of GDP.
That said, the actual spending cut will be much smaller, for two reasons.
The chart below provides a rough estimates of the effect of the spending caps with and without the adjustments just described, compared with the White House's initial reported offer (a freeze in discretionary spending for FY24, and a 1% increase for FY25) and the Republican bill the House passed in April.
Other things equal, the adjusted caps look likely to reduce spending by 0.1-0.2% of GDP yoy in 2024 and 2025 (lower left chart).
And here is the punchline: because the increase in funding for FY23 that Congress approved late last year was so large (nearly 10% yoy) some of that spending boost will spill over into FY24 and overall spending is likely to be higher in real terms next year despite the new caps (lower right chart).
And just like that the uniparty has sold America down the river yet again.
* * *
Yeah, I’m as shocked as most of you are.
Did it at least require the “rate of growth” of spending go down, which in DC is called a “cut”?
By the same logic, I saved a girl from getting raped and murdered, because I changed my mind after the first two.
We’ve known for years that in DC-speak, a “cut” just means a reduction in the rate of growth in spending.
Where are all the Republican “fiscal conservatives”? Is “fiscal conservative” code for socialist?
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It’s Psychological. They have extensive meetings in the Intel Community to decide how to manipulate someone based on their interests and desires.
McCarthy embraced his role as saving the Deal and covering for AWOL Biden. He immediately abandoned a Bill the House took pains to get passed, while the Dems did absolutely nothing in Preparation.
Did anyone expext a group of people that lie all the time to not lie this time?
Remember when DOJ figured they could settle w/”abused” illegal immigrants by giving them 500K?
It must be nice to be able to arbitrarily dole out large sums like that.
The gov is flush w/cash. Don’t be fooled.
Only going up 5% rather than 10% is called a cut in the District of Corruption.
The commies are master’s of
the verbal shell game.
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