Expect Agreement on Raising US “Debt Ceiling” – Ryan: Medicare Reform Key Part of 2012 Elections Debate

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by Paolo von Schirach

May 6, 2011

WASHINGTON– Vice President Joe Biden assembled at Blair House, (just across the street from the White House), a small group of Democratic and Republican lawmakers, along with Secretary of the Treasury Tim Geithner, Budget Director Jacob Lew and National Economic Council Director Gene Sperling for a series of talks to get a deal on spending cuts. This deal would clear the way to a law needed to to raise the “debt ceiling”, so that that the Federal Government will have the legal authority to borrow in order to finance its growing debt. (What if no deal? Well, without legal authority to borrow, the US would soon run out of cash and it would be technically “insolvent”, a bit like Greece. No, actually Greece did better, as it got rescued by the European Union).

Get the Republicans to vote “yes”

The issue here is how to to get to a political compromise that would allow the anti-deficit Republicans to vote “yes” on a measure aimed at increasing borrowing and deficit spending. (For every dollar Uncle Sam spends, 41 cents are borrowed). Technically, the US Government will run out of cash in just a few days. Treasury indicated that it can stretch things a bit and squeeze enough dollars to keep the lights on until early August. Hence the urgent need for a deal; otherwise America will not just look like a Banana Republic; it will be one).

No debate on entitlements

The talks apparently started in a reasonably relaxed atmosphere. And why so, given the sharp differences between Democrats and Republicans on the size and scope of spending and welfare programs in particular? Well, it would seem that there is an agreement that this huge subject of the size and scope of welfare spending, in particular for health care, will be saved for the national political debate beginning to unfold now in view of the 2012 presidential and congressional elections. So, there will be a fight on entitlement reform, but not now on this urgent issue of raising the “debt ceiling”.

Paul Ryan: reform will be part of the 2012 elections debate

Congressman Paul Ryan, Republican Chairman of the House Budget Committee, presented his own plan for fiscal reform, (“Path To Prosperity”), focusing largely on radically transforming key Federal health care programs. Still, Ryan indicated that there will no action on welfare reform before the 2012 elections. He believes that his party will be able to bring the issue to the voters and that –with a clear mandate– after a (hoped for) Republican victory in November 2012 it will be possible to engage in reform.

Ryan indicated to a Washington crowd that going around his constituency in the state of Wisconsin he sees that when people are told “the truth” about ruinous entitlement spending and the consequent need for serious change “they get it” and they support real change.

Who will win?

I hope that Paul Ryan is right. I know he is right when he affirms that Medicare and Medicaid, if left unchanged, will bankrupt America. However, as to Middle America’s appetite for radical reform that will curtail government help in paying their bills, I would not be so sure. It is guaranteed that the Democrats will present themselves to the voters as the staunch defenders of the status quo that favors large benefit to senior citizens. And everybody knows that in America senior citizens vote in high numbers.

In any event, expect a deal on raising the “debt ceiling” soon, as the contentious entitlement reform issues that may block an agreement are apparently off the table.

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