Analysts on Raising the Debt Ceiling

By The NewsHour, The NewsHour - August 2, 2011

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JUDY WOODRUFF: The U.S. Senate gave final approval today to an agreement both to raise the ceiling on the government's debt and to cut spending, a deal the president quickly signed. The actions staved off a default, but left lingering questions about the nation's future credit rating.

NewsHour congressional correspondent Kwame Holman begins our coverage.

WOMAN: Mr. Udall of New Mexico, aye.

KWAME HOLMAN: The Senate vote came less than 12 hours before the government's borrowing authority would have expired, leaving federal bills unpaid. In the end, the measure cleared the chamber with broad bipartisan support, 74-26, and President Obama quickly signed it.

He spoke at the White House just after the Senate result was finalized.

PRESIDENT BARACK OBAMA: This compromise guarantees more than $2 trillion in deficit reduction. It's an important first step to ensuring that, as a nation, we live within our means.

KWAME HOLMAN: Those savings are to be achieved over the next decade in two stages. The debt ceiling will be raised by a similar amount, also in two stages, allowing the government to continue borrowing into 2013.

The plan relies heavily on a joint congressional committee to recommend $1.5 trillion of the total savings. Congress must approve the recommendations by year's end, or automatic spending cuts will kick in. That scenario makes likely a renewed fight this fall over spending cuts vs. tax increases.

Senate Majority Leader Harry Reid spoke for many Democrats today.

SEN. HARRY REID, D-Nev. majority leader: The only way we can arrive at a fair arrangement for the American people with this joint committee is to have equal sharing. It's going to be painful. Each party, if they do the right thing, it's going to be painful for them, because, to be fair, we have to move forward. There has to be equal spending cuts. There has to be some revenue that matches that.

KWAME HOLMAN: But Senate GOP Leader Mitch McConnell gave no indication that his side will give ground on tax hikes.

SEN. MITCH MCCONNELL, R-Ky. minority leader: Much work remains, and, to that end, our first step will be to make sure that Republicans who sit on the powerful cost-cutting committee are serious people who put the best interests of the American people and the principles that we have fought for throughout this debate first.

KWAME HOLMAN: The president, meanwhile, looked to quickly put the debt debate behind him and turn attention to job creation.

BARACK OBAMA: While Washington has been absorbed in this debate about deficits, people across the country are asking, What can we do to help the father looking for work? What are we going to do for the single mom who's seen her hours cut back at the hospital? What are we going to do to make it easier for businesses to put up that "now hiring" sign?

KWAME HOLMAN: While the president and lawmakers managed to avoid default, neither side appears to have escaped blame for a messy process. A new Washington Post/Pew Research Center poll found 37 percent of Americans hold a less favorable view of President Obama in the wake of the debt fight, and 42 percent said their impression of congressional Republicans has worsened.

Beyond public opinion, there also were signs of economic fallout from coming so close to the debt limit deadline. Treasury Secretary Timothy Geithner told ABC News he can't be certain there will be no downgrade of the country's credit rating.

TIMOTHY GEITHNER, U.S. Treasury secretary: I can't -- it's not my judgment to make. And they have to make that judgment, but this is a -- in some ways a judgment on the capacity of Congress to act. And what this deal does is put us in a much better position to make those tough choices.

KWAME HOLMAN: Already, there have been rumblings from major bond rating agencies that the debt deal by itself is not enough. One of them, Fitch Ratings, warned today it may lower its assessment of U.S. creditworthiness by the end of August.

JEFFREY BROWN: The day's action in Washington could not stop a sell-off on Wall Street. Stocks plunged again, as they have for more than week, and the market gave up all its gains for the year amid mounting fears that the economy is stalling again.

The Dow Jones industrial average lost nearly 266 points to close at 11,866. The Nasdaq fell 75 points to close at 2,669.

And we look further at the state of the economy and the impact of the debt and deficit deal now with Robert Reich, professor of public policy at the University of California, Berkeley. He served as labor secretary in the Clinton administration. And John Taylor, economics professor at Stanford University and a senior fellow at the Hoover Institution, he was a Treasury official in the George W. Bush administration.

Robert Reich, I will start with you.

You think this debt and deficit deal is bad for the economy. Is it in both the short and long terms? Explain.

ROBERT REICH, former U.S. Labor secretary: Well, Jeff, it's good for the economy in terms of staving off a kind of a crisis that we almost faced with regard to a default on the full faith and credit of the United States.

But it's not terribly good for the economy overall, because it really does tie the president's hands in terms of a jobs bill that would stimulate jobs growth and fulfill kind of the mission of the government, when, in fact, consumers and businesses are not able or willing to buy or to sell.

And that's the case now. The reason, I think, of the sell-off on Wall Street today, the great stock decline, is because a lot of companies now realize that there is just going to be insufficient aggregate demand for all the goods and services that need to be sold.

JEFFREY BROWN: Well, John Taylor -- we will engage on some of these.

John Taylor, first, start -- starting point, what do you see as the impact on the economy of the deal?

JOHN TAYLOR, Hoover Institution: I think it will turn out to be quite positive.

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