There's still time for a debt fix 'do over'

The failure of the debt-ceiling agreement that was arrived at last week opens up a new opportunity for Washington to get it right.

Don’t tell Congress or the president, but the downgrading of the US credit rating by Standard & Poor's from AAA to AA+ isn’t likely to spawn an immediate fiscal crisis.

Yes, stock markets around the world have taken a big hit (the Dow was down nearly 500 points at midafternoon Monday) and may flounder for awhile. But no one thinks the United States has suddenly become unable to pay its debts – or that the world will suddenly stop investing in US Treasury bills.

The status of the US dollar as the world’s “default” currency isn’t going to disintegrate overnight. Nor will the cost of borrowing for US consumers necessarily rise dramatically: Japan’s S&P rating is AA- (two steps lower than the new US rating) and Tokyo still is able to pay a lower rate to finance its debt than US Treasuries are offering.

But last week’s debt-ceiling “fix” that proved to be no fix at all, passed by Congress and signed by the president, does signal that serious problems remain for the long-term health of the US economy. Washington only “kicked the can” of the problem a few weeks down the calendar before a special committee comprised of six Democrats and six Republicans will have at the problem again.

Reactions from members of Congress and the White House over the weekend centered on the predictable and tired “blame game.” The president had suffered a huge setback and shown himself to be an ineffectual leader, said some. Or was it the GOP that was the big loser, held hostage by its tea party faction that refused to compromise?

The GOP felt voters' wrath in 2008; the Democrats took their own hit in 2010. It’s hard to say who’ll be left holding the bag in 2012. The public seemed ready to spread the blame widely across party lines, with a record 82 percent of people polled disapproving of Congress in general.

And that’s the point. The time for leaving politics-as-usual behind is long past. And opportunities still lie ahead. Just because Washington spit the bit last week doesn’t mean it can’t learn from its failure. The Joint Select Committee on Deficit Reduction, whose members will be named next week, presents a chance for a “do over.”

The committee is mandated to find another $1.2 trillion to $1.5 trillion in cuts over the next decade to accompany a little less than $1 trillion already agreed on. But even this won’t satisfy Standard & Poor's, which wants to see $4 trillion in cuts over that period.

Another weak response from Congress isn’t going to satisfy S&P, or investors, that the US financial house is under real repair. The select committee needs to aspire to more: It needs to return to finding the “grand bargain” that President Obama and Speaker of the House John Boehner (R) of Ohio had talked about and find that $4 trillion over a decade.

To attain that grand bargain each side of the aisle will have to be willing to give away a precious position. Democrats will have to permit cuts in entitlement programs such as Medicare and perhaps rethink aspects of the new universal health-care law. Republicans will have to allow revenue increases, such as letting the Bush tax cuts on wealthy Americans expire, to gain the necessary agreement.

Politicians digging ever deeper into to hardened partisan positions has led to disastrous consequences. The people’s representatives in Washington now have an obligation to rise above their personal political ambitions and prospects for reelection – even beyond their cherished personal convictions about how best to put the nation’s finances back on course.

Americans – and the world – are waiting to see if Washington will rise to the occasion and place America’s well-being first. The nation’s future prosperity – and its future role in the world – depends on them doing so.

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