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The Debt Ceiling Farce Is Ending… Or Is It?

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Tyler Durden
Zero Hedge
July 17, 2011

It may be time to rebrand Congress as the new CTU, although when it comes to who in D.C. should play agent Jack Bauer we are still unsure. The reason is that this morning we get two diametrically opposing fictions about the latest reality on the debt ceiling. On the one hand we read in the LA Times that, “Republican leaders in the House have begun to prepare their troops for politically painful votes to raise the nation’s debt limit, offering warnings and concessions to move the hard-line majority toward a compromise that would avert a federal default. For weeks, GOP conservatives, particularly in the House, have issued demands about what they would require in exchange for their votes to increase the debt limit… Unwilling to risk the economic and political consequences of a federal default, which could come as early as Aug. 2, they have started the difficult process of standing down.”

That, however is not what The Hill heard: “House Republican leaders have missed a 36-hour deadline President Obama set during a Thursday meeting for lawmakers to give him a plan to avert a national default. The deadline came and went Saturday morning without a response from House Speaker John Boehner (R-Ohio). Instead, Boehner and House Majority Leader Eric Cantor (R-Va.) plan to move the Cut, Cap and Balance Act on the floor next week, which would require passage of a balanced budget amendment to the Constitution before the debt limit is raised. A House GOP leadership aide said at noontime Saturday that Boehner and Cantor did not send Obama a revised proposal to raise the debt-limit, as the president requested.” So which is it? And has M. Night Shyamalan been retained to write the surprise twist ending to this nail-biter? We doubt it. Unfortunately, we are still convinced the republicans, under the “wise” defection of Mitch McConnell will fold, Obama will get what he wants, and the republican tough stance will go up in a puff of smoke leading to an even great loss of credibility for the GOP. There is less than 168 hours in which we can be proven wrong. We hope we are, but we doubt it.

Version one of events from the LA Times, in which yet another movie, Star Wars, is invoked:

At a closed-door meeting Friday morning, GOP leaders turned to their most trusted budget expert, Rep. Paul D. Ryan of Wisconsin, to explain to rank-and-file members what many others have come to understand: A fiscal meltdown could occur if Congress fails to raise the debt ceiling.

House Speaker John A. Boehner of Ohio underscored the point to dispel the notion that failure to allow more borrowing is an option.

“He said if we pass Aug. 2, it would be like ‘Star Wars,’” said Rep. Scott DesJarlais, a freshman from Tennessee. “I don’t think the people who are railing against raising the debt ceiling fully understand that.”

The warnings appeared to have softened the views of at least some House members who, until now, were inclined to dismiss statements by administration officials, business leaders and outside economists that the economic impact would be dire if the federal government were suddenly unable to pay its bills.

Freshman Rep. Steve Womack (R-Ark.) said the presentation about skyrocketing interest rates that could result from downgraded bond ratings was “sobering.”

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“It illustrates to us that doing nothing is unacceptable,” he said. “I think the conference understands this is a defining moment for us. It’s time to put the next election aside.”

Granted the LA Times does realize this spin of events is missing one key thing: the fact that conservatives will scream bloody murder at being betrayed by their own party:

At the same time, Republican leaders orchestrated a series of public moves intended to soften the blow for conservatives. They agreed to give the House an opportunity to vote on two top conservative priorities: a so-called cut-cap-and-balance bill, which would order $111 billion in cuts in federal programs for 2012 and impose a cap on future spending, and a constitutional amendment that would require a balanced federal budget.

The Democratic leadership in the Senate is also expected to allow votes on one, and perhaps both, measures. Neither is expected to become law — the constitutional amendment would require a two-thirds vote in both chambers — but the chance to vote could appeal to the “tea party” conservatives in the House, who are most skeptical of any deal with the White House to raise the debt limit.

“We’re in the fourth quarter here,” Boehner said. “Let’s get through that vote, and we’ll make decisions about what will come after.”

As for the “other side”, here is The Hill:

At a meeting late Thursday afternoon, Obama gave congressional leaders 24 to 36 hours to meet with their colleagues to figure out a plan that could pass both chambers.

“It’s decision time,” Obama said.

Ignoring Obama’s directive, Republican leaders are coalescing around the Cut, Cap and Balance bill that is expected to pass the House but has virtually no chance in the Democrat-controlled Senate.

Senate Republican Leader Mitch McConnell (R-Ky.) is pushing Senate Majority Leader Harry Reid (D-Nev.) to schedule votes on the Cut, Cap and Balance bill and a balanced budget amendment in the upper chamber next week.

A Senate Democratic aide said it’s likely that at least one of those Republican priorities will receive floor time next week because it would clear the way for passage of a last-ditch contingency plan later this month.

The contingency plan, proposed by McConnell, has become more politically viable as negotiations between Obama and congressional leaders have broken down.

We stand by our prediction that there will be no budget cuts (and $1 trillion over the next decade amounts to less than $100 billion per year: this is less than 8% of the total amount of debt issued each year by Time Geithner: i.e., a farce, and a precondition to a downgrade by S&P, of course, until they too are shut down by the latest and greatest bribe out of wherever). There will also beno tax hikes, and the US Titanic will continue on its merry way to the iceberg without a change in course, even as the two-party scam in DC congratulates itself for a “grand compromise” well done.

Next up: total US debt/GDP at 120% in under a year, with a primary deficit at 10% of GDP, i.e. far, far worse than Italy.

This article was posted: Sunday, July 17, 2011 at 5:32 am





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