U.S. Government Survives Shutdown Threat But Last Minute Deal Only Postpones More Serious Economic Warfare

The Capitol Hill battlefield is still for the moment as the Easter holidays approach and the combatants get a break from the heated polemics and overnight bargaining sessions. In a last minute deal, milked by both sides for maximum drama and political advantage, the government will not shut down--at least not now--even as its budget has taken a major wack.

Each side can posture to supporters as a victor. The President, who managed the process from the shadows, posed for photos in the White House after his great compromise of 2011 was announced.

It was a media moment to be relished, as media columnist Howard Kurtz explained on the Daily Beast,

"The White House escaped most of the blame. Once the spotlight shifted from the political gamesmanship to the human impact of a shutdown--soldiers in Iraq and Afghanistan not getting checks, passport offices closed, national parks off limits--everyone knew an angry public would start pointing fingers. But blame-shifting is a high art in Washington; now both sides can argue about who brought the country back from the brink."

Oh, the games, the politicians play in the fight for public perception. But in the reality sphere, what can't be denied is the actual money involved and who will be hurt.

The Washington Post's Ezra Klein cut through the bull to look for the bone,

"The substance of this deal is bad," he writes, "But the way Democrats are selling it makes it much, much worse.

The final compromise was $38.5 billion below 2010's funding levels. That's $78.5 billion below President Obama's original budget proposal, which would've added $40 billion to 2010's funding levels, and $6.5 billion below John Boehner's original counteroffer, which would've subtracted $32 billion from 2010's budget totals.... Obama bragged about "making the largest annual spending cut in our history." Harry Reid joined him, repeatedly calling the cuts "historic." ... You would never have known that Democrats had spent months resisting these "historic" cuts, warning that they'd cost jobs and slow the recovery.... The Democrats believe it's good to look like a winner, even if you've lost. But they're sacrificing more than they let on."

Take a breath because this budget fight is only a minor blip in a deeper and protracted war that is just cranking up. As Business Insider notes, "The fight over whether to shut down the government for a few days is chicken-scratch. It's low-stakes poker compared to the fight over the debt ceiling, which must be resolved by May 8, in just over a month....

The consequences are way more severe, potentially, than the shutdown of government. At the most extreme, it could lead to default. And if you figure that the market goes into a tizzy at the suggestion of, say, Greece defaulting, then the impact of the US should be easy to comprehend.

There's no doubt that Boehner doesn't want a disastrous outcome, but his challenge is in getting his more radical compatriots to come along with him."

Some like the American Dream blog fear a collapse of the economy in the absence of more fundamental change:

"It is being projected that U.S. government debt will rise to about 400 percent of GDP by the year 2050. Of course that will never happen because we will have a complete and total financial collapse in this country long before then if nothing changes.

So the game of attrition and denial continues. In the wings is a proposal from Republican budget maven, Congressman Paul Ryan to cut TRILLIONS in federal spending for various forms of health care. Nobel Prize winning economist and New York Times columnist Paul Krugman calls it senseless and cruel.

The myth is that these cutbacks will create new jobs. There is little evidence of that. Many of those hardest hit by joblessness get little attention including minorities and the young. Reports economist Max Wolff, "People under 35 years old are not getting the new jobs we create. Employment, home ownership, and wage increases are bypassing younger Americans. As state and local budgets are cut, education and services for the young are contracting especially sharply.

While this high stakes political battle catches the headlines, the sclerosis in the private economy is downplayed with deceptive gains on the job front.

As for housing, the retirement dreams are being destroyed by the fall in housing value reports Bloomberg news "Even if the housing market starts to improve throughout the country in the next few months, and actually begins an upward trend, the damage done to middle class homeownership cant be estimated even by using the most sophisticated algorithms. As a result of changing business models, many Americans looked to the equity in their home as their 401K plans and the foundation for retirement. For many homeowners, equity equaled net worth. With that equity evaporating, and an inability to sell a home even at drastically reduced prices, lives have been so dramatically impacted financially, that a housing recovery, if and when it happens, may not really matter."

At the same time, the investigations and prosecutions of financial fraudsters move at a glacial pace. Perhaps if prosecutors moved more aggressively, they would take down whole industries built on fraud. What seems clear that this pushing for the highest returns had little interest in ethics or legalities. These are the people who benefit from the Republican fervor for the "free market."

In his most recent interview with the Financial Times, "Ponzi King Bernie Madoff confirmed that while he was responsible, many of his crimes were a response to demands from his biggest clients who wanted more money, no matter how he earned it.

The push for breaking the rules was from above--as it often is.

Says Gillian Tett, "In the flesh, Madoff spins a credible tale of how a renegade entrepreneur conquered Wall Street and was drawn into crime by personalities and forces he could not control. It sounds almost convincing."

"One of the reasons he called us in," Tett observed, "was because ... he was very keen to explain his side of the story. And he says, as so often with big frauds, that he started off small-scale, essentially trying to cover his tracks in a very small way. He thought he would be able to get himself back on track later on once the markets turned. However, the whole thing began to engulf him. And essentially, it snowballed..."

That snowball is still rolling. The Republicans and the Democrats run from this crime issue even as their budget, justified in pragmatic terms, will be seen as a crime by the public once their checks stop and benefits stop coming.