STOCK MARKET WATCH -- Thursday, 2 August 2012

[Demeter]

32. A Budget Crisis Averted, for Now

http://www.nytimes.com/2012/08/02/opinion/after-budget-deal-no-government-shutdown-this-year.html

Members of Congress used to be embarrassed when they could not perform their basic job of passing spending bills and instead had to finance the government with a series of short-term resolutions. But such patchwork has now become commonplace, and it is a sign of Washington’s profound dysfunction that the short-term agreement reached on Tuesday came as a relief to both sides.

House and Senate leaders settled on a deal to keep the government running through March, preventing it from shutting down when the fiscal year ends on Sept. 30. With Congress polarized and paralyzed by the coming election, no regular appropriations bills have been enacted, and none will be before the deadline.

The prospect of a shutdown was a real one because House Republicans broke an agreement that they had reached with the Senate last year on the size of the federal budget for the 2013 fiscal year. In settling the debt-ceiling crisis last year, the two chambers passed a measure setting discretionary spending at $1.047 trillion for 2013. But to make one of its periodic points about excessive spending, the House recklessly chopped $20 billion off that amount in March, much of which would have come out of Head Start, Pell grants and state aid.

At the time, many House conservatives said that they relished a confrontation with the Senate, hoping the threat of a shutdown would give them the cuts they wanted. After all, it worked the year before when Republicans cynically used the deadline to wring nearly $40 billion in cuts from the 2012 budget. The withdrawal of that much spending helped neutralize the stimulative effects of the previous year’s payroll tax cut, keeping the economy stagnant...The difference this year is the November election. Wiser Republican leaders knew that a shutdown crisis in September would leave a bad taste with voters, many of whom (correctly) tend to blame these kinds of things on their party. So the lawmakers agreed on a continuing resolution that will keep the spending limit at $1.047 trillion — far lower than it should be when the economy needs a boost, but at least it’s not making things worse. The White House signed on, and the resolution is supposed to be passed after the August recess.

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