Obama: 'Balanced Approach' Is Best Debt Deal

Analysis

In a Monday night address to the nation, President Barack Obama reiterated that the way to cut the budget deficit is to use a balanced approach - involving both substantial cuts in spending and revenue increases - not one that relies solely on cuts.

Obama also called on the Congress to raise the debt ceiling before the nation runs out of money and borrowing authority on Aug. 2, and he argued that a broad consensus exists in the Senate and partially in the House to achieve his balanced approach, but that a faction of Republicans in the House -- the Tea Party faction of the GOP -- was preventing it.

Obama called the Tea Party's opposition to any revenue increases and its willingness to trigger a U.S. Government default by not raising the debt ceiling until it got everything that it wanted, "reckless and irresponsible."

The president then called on Americans to make their feelings known to their respective Congressman or Congresswoman, to help him break the gridlock in Washington.

Obama added that a failure by Congress to raise the debt ceiling would trigger a "deep economic crisis."

Obama is not alone on that point. The U.S. Congress has until the end of Aug. 2 to raise the U.S. debt ceiling to enable the government to pay its bills and service any debt due. On Aug. 4, the U.S. Treasury Department is due to pay off $30 billion in maturing short-term debt. In theory, the United States could prioritize debt payments, but U.S. Treasury Secretary Timothy Geithner has warned lawmakers in Congress that the prioritization tactic would still cause investors to shun U.S. Treasury securities, commonly known as Treasuries.

Geithner has also repeatedly underscored that failing to raise the debt ceiling will have no constructive outcomes for the nation's fiscal condition, the task of deficit reduction, and U.S. and global stock and bond markets.

In addition, U.S. Federal Reserve Chairman Ben Bernanke, in an earlier Capitol Hill testimony, in unusually frank terms for a Federal chairman, underscored that a default would trigger a "huge financial calamity," adding that it would send a "financial shockwave" throughout the global financial system.

Bernanke said U.S. Government bonds are considered the lowest-risk bond investment class in the world, and serve as a benchmark for interest rates for other, more-risky bond and asset classes. If investors can't count on the safety of U.S. debt, they would ask for higher interest on that asset class, pushing up the interest rates on other assets, among other ripple effects, he said.

Political/Public Policy Analysis: T-minus 8 days, and counting, until the default deadline, and the nation's two political parties are still staking out political positions, rathering than engaging in the hard work of finding common ground, compromising where needed, and forging a bipartisan, national solution. The response of House Speaker John Boehner, R-Ohio, to President Obama's speech read like a platform from a GOP nominating convention, hence, Monday was a wash: no steps forward, no steps back.

Washington now also has two debt deal plans: U.S. Sen. Harry Reid, D-Nev., Monday offered a sweeping $2.7 trillion spending reduction plan that calls for major cuts in domestic programs and $1 trillion in defense cuts. Reid's plan also raises the debt ceiling by $2.7 trillion.

The plan has the endorsement of President Barack Obama, who said it was a more-reasonable approach than a plan formulated by Boehner.

Speaker Boehner's plan calls for only a short-term increase in the debt ceiling by up to $1 trillion, along with $1.2 trillion in budget cuts; then a second round of debt reduction in 2012, which is an election year. Obama said he is opposed to a two-step plan unless it contains substantial budget cuts and a revenue increase, and he is also opposed to requiring Congress to vote on the measure twice: that he said, would only perpetuate the debt ceiling uncertainty in the minds of corporate executives and other business leaders.

List Monday as the official 'rhetoric for dollars' day -- done purely to appeal to each party's base. But the argument forwarded here remains that the experienced minds in each party will get down to business and forge a bipartisan deal by Monday, Aug. 1. Therefore, on a scale of 0 to 100 percent, the likelihood of a U.S. Government default remans at 25 percent on Monday night, the same as it was Monday afternoon.