As the dust settles and the adrenaline abates from the big budget fight, what really happened? Far less than met the eye.
The result, despite all the sturm und drang, doesn't amount to much. Certainly markets here and around the world aren't impressed by the big deficit/debt deal. Nor are they, nor anyone else, impressed by the state of the economy.
Obama is whipsawed between the widespread desire for deficit reduction and the widespread desire for economic stimulus, points of view not infrequently held by the same voters, bless their pointy little heads.
Obama's fundamental problem was letting austerity replace prosperity as the dominant theme of Washington. Once Republicans took the House, adding to their filibuster power in the Senate, they moved to cut off economic activism. Obama needed to recognize the truism that in politics there is no substitute for repetition, and pound away on the economy, the topic to which he was always about to pivot last year, but never quite did, as I wrote in my 2010 election "pre-mortem" here on the Huffington Post.
The best thing selling the deficit/debt deal as a real deal is the hostile reaction from some of the left. Absent that, it looks as illusory as previous deals, as we're seeing with the reaction from China, Standard & Poor's, and others.
There were problems with the numbers behind the Standard & Poor's rating downgrade -- S&P initially made a $2 trillion math error -- and S&P had a clear agenda in mind, having warned the government that it was likely to downgrade is $4 trillion in long-term deficit reductions weren't achieved, which would have required new revenues. And S&P, like other ratings agencies, has serious credibility problems for its enabling all sorts of massive financial shenanigans over the past decade.
Nevertheless, they have done it, in what is clearly a commentary on the dysfunctional political system.
And they are not alone.
This past weekend the Chinese government lambasted the US government for its ways.
Speaking through the official Xinhua news agency, the Chinese government declared that the US government "must cure itself of its addiction to debt."
China, of course, is by far the largest holder of US debt instruments. So its official comments are more than a bit alarming.
However, it's not clear that China has realistic alternatives to investing in US debt, i.e., financing our federal government deficits. In addition to the question of where else the money might go, there is the fact that China is very dependent on export to the US for its present levels of growth and prosperity. Simply put, the US and China have a symbiotic relationship.
Nor is the Tea Party happy about the deficit deal, as we see in this new Gallup Poll, which shows that Tea Party supporters hate the budget deal.
Why? Well, not enough cuts, and too little change.
Tea Party supporters overwhelmingly disapprove of the agreement reached by President Obama and Congress to raise the federal debt ceiling, by a 68% to 22% margin. A majority of Tea Party opponents approve of the agreement, while those who are neither supporters nor opponents of the Tea Party have mixed views.
When you look at the deal, it's not a surprise.
The agreement is for $900 billion in immediate cuts to the record federal budget deficit. That is, however, "immediate" as in over the next 10 years.
It then creates a "super committee" of a dozen members of Congress, half from each party, to come up with another $1.5 trillion in deficit reduction, which can come in the form of budget cuts or new revenues. If they fail to do so, or if Congress votes down the committee's recommendations, $1.2 trillion in budget cuts kick in, half from the defense budget. Medicaid and Social Security are immune from the cuts. Medicare providers would take a hit.
While the first round of cuts phases in over the next 10 years, with barely any of it between now and the next year's election, the second round of cuts would not begin until 2013. Of course, these sorts of back-end cuts have been enacted before, to little effect in the long run.
As this less awe-inspiring deficit reduction takes place, the federal debt ceiling, already at record levels, is to be raised by another $2.4 trillion, taking the government through the 2012 election cycle.
Still, this is hardly a win for Democrats. Once the raising of the federal debt ceiling, something which has been a matter of routine throughout the modern era, was coupled with deficit reduction, budget cuts were always in play. Which is to say, once the Republicans won the House, powered by far right Tea Party ideology, the game had changed.
As for revenues, as we know here in California, all too well, the mantra of the new Republican Party is no taxes ever. If the dominant faction of the party was serious about deficit reduction, they would have adopted Obama's balanced approach of cuts and revenues. Just as they would have adopted Governor Jerry Brown's approach of cuts and revenues in California.
But they're not serious about deficit reduction. They want to cut not deficits, but government. And they want to promote their anti-tax mantra at all costs.
Obama already had the makings of a perfect storm with the European debt crisis, the Japanese disaster, months of too high energy prices he oddly wouldn't jawbone as gasoline prices stayed oddly out of phase with post-bin Laden oil prices, and capital that has largely stayed on the sidelines since the federal bailout.
Obama also has the complication of a scanty tool kit. After a stimulus package designed by congressional committee chairs -- oops, make that former congressional committee chairs -- and spending too much of his political capital on a health care bill too complicated to explain that nobody much cares about, at least in any positive sort of way, he has a significant problem. And to the extent he finds anything that costs real money, it gives the lie to his deficit reduction talk.
Nevertheless, Obama still has an opportunity, especially now that the debt ceiling is off the table through the 2012 elections. But he faces a conceptual heavy lift, having adopted the deficit reduction rhetoric -- if not really the reality when one looks at the just enacted deal -- as he seeks to pivot back to economic revitalization.
If the budget really is being cut in a major way, and it certainly is not in the near term, and perhaps not ever, how can he intervene in a major way to aid a sputtering economic recovery? He can't, and preserve the fiction of big budget cuts.
But politics is also about contrasts, which is why Obama is starting a bus tour of the Midwest just two days after the big Iowa Republican Straw Poll on August 13th, which promises to be a festival of far right zealotry.
While it's true that there are a lot more conservatives than liberals, as this new Gallup Poll survey on political ideology and identification in the US, shows -- self-identified conservatives have a plurality in the country, with nearly as twice as many adherents as self-identified liberals -- there are plenty of self-identified moderates who aren't at all conservative.
Do they really want to embrace a dumber version of the economic approach that failed throughout the last decade, nearly creating a depression in the process?
And when is Obama going to talk about this?
You can check things throughout the day on my site, New West Notes ... www.newwestnotes.com.