Bob Moon: Markets have soared on the news even though a lot of this deal kicks the can to 2012.
Joining me live is Gregory Warner from Philadelphia. Good morning, Gregory.
Gregory Warner: Good morning, Bob.
Moon: OK Gregory, Congress took things down to the 11th and a half hour so to speak — so how does this deal avoid downgrade and potential default?
Warner: Well as you said, Congress still needs to pass this thing. The rest of the House stil lhas to give their yes vote. But if they do — about $900 billion in cuts up front, another $1.5 trillion in future cuts to be decided by next year or there are going to be a trigger for automatic cuts. Karen Petrou of Federal Financial Analytics looked at this deal. She said that markets will be happy and the rating agencies won’t downgrade us — but the real economic impact is uncertain.
KAREN PETROU: “The actual impact remains to be seen because this is a tough time to cut this much spending. We’re still in a, at best, a very weak recovery.”
Moon: You mentioned this deal has a “trigger” — what’s that?
Warner: The trigger is that if Congress does not agree to what to cut next year, the new cuts would go into effect automatically. Cuts to Medicare providers and the budget of the Pentagon. So in other words if Congress can’t make the hard choices that they were not able to make this time around, then doctors will feel that in their pay, and the Pentagon will take a hit. That’s a way to force Congress to make a decision.
Moon: What’s to say the trigger will work — does this end the uncertainty hanging over the economy?
Warner: So the trigger has been tried before — there was something like it in 1985 — lawmakers found a way around it. Proponents say this trigger has more teeth. But, because those hard choices about taxes and entitlements were not made, you and I might not have to say the words debt ceiling anymore, anytime soon, but the debate over the deficit. It’s just getting started.
Moon: Thank goodness for the not saying debt ceiling for very much longer. Gregory Warner, thank you in Philadelphia.
Warner: Thank you, Bob.
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