Total Farce: Real Spending Under Debt Ceiling Deal Actually Goes Up Next Year

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Late last week, we were the first to correctly summarize what the bottom line of the so-called “debt ceiling deal” meant for the US, for future generations of Americans, and for the ridiculous melodrama gripping Washington: a -0.2% of GDP cut in nominal spending.

That’s right: that 0.2% cut in spending is what all the brewhaha was over, a cut which will not only push total debt to $35 trillion by the end of Biden’s term, but will not even put a dent in the long-term US debt trajectory which even the CBO has no problem as showing in its full, hyperinflationary glory.

Still, to Kevin McCarthy who “negotiated” on behalf of America’s conservatives, that paltry, laughable nominal “spending reduction” was apparently something to be very proud of, as he repeatedly pointed out on his twitter feed…

… if only a closer look reveals that not all is as it seems.

In its post-mortem of the debt ceiling deal published this evening, Goldman summarizes the outcome as follows: “the spending deal looks likely to reduce spending by 0.1-0.2% of GDP yoy in 2024 and 2025, compared with a baseline in which funding grows with inflation. That said, the boost to funding Congress approved late last year for FY23 was so large (nearly 10% yoy) that overall discretionary spending is likely to be slightly higher in real terms next year despite the new caps.”

Translation: the “deal” may result in a nominal 0.1% drop in spending (just for next year, after that it ramps up again), but adjusted for inflation, spending in 2024 will be higher yet again!

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