Amidst all the discussion about who won or lost the political psycho drama in Washington the obvious point has been missed.  This is that other than an agreement to raise the US government’s overdraft limit absolutely nothing has been agreed at all. 

Obama and the Democrats failed to secure the tax rises they were seeking.  It is absolutely clear that so long as they remain in control of the House of Representatives the Republicans will not agree to any tax increases.  This for the Republicans is now a totemic issue.  There is no realistic possibility that the Republicans will ever agree to tax increases.  This means that for the foreseeable future tax increases will not happen  .

If Obama and the Democrats failed to secure any tax increases the Republicans and the Tea Party failed to secure any spending cuts.  There is talk of $2.5 trillion of spending cuts but no indication of what these will be.  Moreover it is clear that there will be no spending cuts at all this year or before the Presidential election.  A bipartisan committee is supposed next year to look into the question of spending cuts and to decide which areas of government spending are to be cut.  Supposedly if there is no agreement then cuts will happen automatically across the board.

There is no possibility that this will happen.   Experience shows that when push comes to shove even the most hardline Republicans balk at actual spending cuts.  The idea that the bipartisan committee or even its Republican members would cut popular spending programmes like Medicare and Medicaid in an election years is unreal.  Nor in the event that no cuts are agreed will either Congress or the President actually allow automatic cuts to happen across the board.  Some device will be found (it always is) to prevent this happening..  The new law might be amended or even repealed.  More probably it will simply be forgotten or cosmetic cuts will be announced that will have no actual substance but which will enable everybody to pretend that the terms of the law have been met.

The truth is that all the posturing over the last few weeks was never intended to have any other outcome.  There has never been any real negotiation or even argument.  What has happened is that both sides have instead postured in front of their supporters.  Obama has sought to portray the Republicans as fanatical and irresponsible and in this he has succeeded.  The Republicans has sought to portray Obama as weak and themselves as principled and firm and in this they too have succeeded.  Which of the two has gained the greater advantage time will tell.  In the meantime the one certainty is that without tax increases or spending cuts the deficit will grow.


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