There was no wild jubilation either in the White House or Congress at the passage of a law to raise the federal debt ceiling that allowed the U.S. government to pay its bills and avoid default before an August 2 deadline.
It took six months and secret negotiations, as well as continuing debate by Congressional lawmakers, to accomplish a procedure that used to be done routinely dozens of times under past presidents.
On Wall Street, financial investors were not impressed by the rise in the budget debt ceiling. The Dow Jones industrial average dropped 266 points by the close of trading, and all of the major Wall Street indexes lost more than 2 percent.
European and Asian stock markets also took a beating on Tuesday, August 2, the day that Congress approved the rise in the budget deficit ceiling. Lower stock market numbers were reported everywhere: in London, Paris, Frankfurt, Japan, Hong Kong and other countries.
What was of major concern to economists and many business executives was the effect that the rise in the debt ceiling would have on the nation's economic growth. Specifically, the new law calls for spending cuts of$900 billion, with at least another 1.5 trillion, possibly before the end of 2011.
There is no provision for a tax increase to provide the revenue to promote investment in infrastructure, energy, job creation and education. This means a shrinkage in the functions of government, a tenet of Tea Party activists. Consumer spending would fall off substantially, as the price of goods and services increased, raising the specter of inflation.
Trillion-Dollar Spending Cuts Will Stunt U.S. Growth
The Republicans are aiming at spending cuts of more than $2 trillion, but they haven't specified where the cuts will be imposed. President Obama and the Democrats have not challenged the spending cuts, which are aimed at programs that provide services for middle class and working class families and retirees.
While Medicare, Medicaid and Social Security are not mentioned in the debt limit agreement, there is no doubt that they will be targeted by the newly-created 12-member congressional committee that will figure out what changes to make in the three entitlements to slash their costs, even at the expense of their effectiveness.