Repercussions of Debt Ceiling Deal
The crisis was averted. Supposedly Americans can breathe a collective sigh of relief. The government is wasting no time, and will borrow $72 billion nest week. With the sale of 3-year notes, 10-year notes, and 30-year bonds, the Treasury Department will use roughly one-third of the money to repay debts taht were a primary issue in the debt-ceiling debate in the first place.
Financial repercussions over the current arrangement remain to be seen. While Treasury's advisory group of private bond sellers are of the opinion that credit rating agencies are unlikely to downgrade the nation's credit rating, foreign investors may not be so certain. With China downgrading some U.S. debt, and the largest drop of the Dow Jones Industrial Index since 2008 today, it is too early to think it is smooth sailing ahead.
As for the political repercussions, there are no clear winners or losers. However, Democrats appear to be the worst for wear. The entire debt-ceiling debate was the result of a calculated gamble by Democrats on the Hill. They wanted to "let the Republicans have some buy-in on the debt," as Senate Majority Leader Harry Reid explained his choice to not introduce the debt-ceiling increase while the Democrats still controlled the House. The strategy backfired, probably due to some miscalculations about the power of the populist Tea Party movement, and the ability of the Speaker of the House, John Boehner, to rally his troops. The fact that Boehner pulled it off without the use of his biggest weapons - the threat of withholding financial support for members' district projects and campaign war chests - should be considered seriously by Democrats in the future.
Arguably, the biggest loser is President Barack Obama. With approval ratings trending down - at least a 7% decrease since 2008 - and the not-so-welcome birthday present from Wall Street - the 500+ point drop of the Dow - 2012 does not look very good for him. Obama's latest idea to take a bus tour of the heartland to tout job creation and explain the debt-ceiling is already being ridiculed. Even the left-wing media watch-dogs, Media Matters, have noted right-wing commentaries in the blogosphere comparing the trip to Sarah Palin's tours. Regardless, it is too easy to consider this a re-election campaign tour, as opposed to an informational one. The ploy may backfire if too many Americans view Obama's actions now as being centered on keeping his job, instead of doing his job.