What's wrong with the debt ceiling deal

@CNNMoney August 2, 2011: 3:32 PM ET

Fiscal experts lament that all the energy expended to cut a debt ceiling deal didn't yield far more and far smarter debt reduction.

NEW YORK (CNNMoney) -- The debt ceiling deal President Obama enacted Tuesday cuts deficits and lets the country avert default. But it is getting very muted applause from serious fiscal experts -- the ones who actually understand the federal budget.

"No one should pretend that they have solved anything other than an artificial political crisis," said Bob Bixby, executive director of the Concord Coalition, a nonpartisan deficit watchdog group.

Bixby said he was watching the brokering of the final deal with "fixed horror."

Here's what's been most maddening for hawks: For all the energy spent and bad blood created on the road to resolving that artificial crisis there's not nearly enough to show for it.

Yes, the final deal may reduce deficits by at least $2.1 trillion over 10 years.

But how those savings will be achieved is somewhat misguided, hawks say.

The bill relies too heavily on cuts to discretionary spending, which is not the major driver of the country's long-term deficits. And it all but ignores the need to reform entitlements and raise more revenue -- both of which are key ingredients to improving the country's long-term solvency.

Debt ceiling: What the deal will do

Credit rating agency Fitch underscored that point Tuesday.

"While the agreement is clearly a step in the right direction, the United States ... must also confront tough choices on tax and spending against a weak economic backdrop if ... government debt is to be cut to safer levels."

In theory, the special bipartisan congressional committee that the legislation creates could take up both entitlement and tax reform. But given the partisan bitterness on both those issues, the jury's out on whether the committee -- made up of 12 members from the House and Senate -- can move past that.

"I'd be surprised if the leadership on either side would appoint anyone who would compromise," said Pete Davis, a longtime Hill staffer who now runs Davis Capital Investment Ideas. "Deadlock is much more likely."

But even if the committee surprises the pessimists and delivers a comprehensive debt reduction framework, there's no guarantee Congress will enact it.

Lastly, the size of the deal is less than what hawks were pushing for. A $4 trillion "grand bargain" is what budget experts say is the minimum needed to start hitting the brakes on growth in the country's debt.

The fact that negotiators were working toward such an agreement only to step back from it makes the final deal all the more frustrating.

"We have not reached the promised land," Erskine Bowles and Senator Alan Simpson, the co-chairs of President Obama's bipartisan debt commission, said in a statement. "The plan doesn't do enough to stabilize our debt, nor does it make any meaningful structural reforms to address our nation's long-term fiscal problems."

That means Congress gets to have this whole rancorous debate all over again -- and again -- until they get it right. To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.88%
15 yr fixed3.20%3.23%
5/1 ARM3.84%3.88%
30 yr refi3.82%3.93%
15 yr refi3.20%3.23%
Rate data provided
by Bankrate.com
View rates in your area
Find personalized rates:
Economic Calendar
Latest ReportNext Update
Home pricesAug 28
Consumer confidenceAug 28
GDPAug 29
Manufacturing (ISM)Sept 4
JobsSept 7
Inflation (CPI)Sept 14
Retail sales Sept 14
  • -->

    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.