Party Over for Washington? President Obama and Congress Reach Debt Deal; Debt Limit Extended to 2013 But With a Price

Called a win-win for both sides of the political spectrum, a bipartisan debt deal was reached by congress and President Obama, hours before a Tuesday deadline that would trigger U.S. default for the first time ever. All in all the agreement would put domestic spending at a level so nominal, it has not been reached since Dwight D. Eisenhower was president during the 1950s.

The debt crisis has been adverted with an authorization by the President to raise the debt limit by $2.1 Trillion. It will erase any further increases until 2013.

 The deal comes with the price of huge spending cuts that will most likely touch a majority of divisions equally divided between defense and non-defense spending.A deficit reduction that would amount to nearly $1 Trillion ($900 Billion) in discretionary spending caps is guaranteed over 10 years.

A Bipartisan committee will have until November 23, 2011 to present legislation that will get fast-track protection, this is in addition to finding $1.5 Trillion in additional cuts.

But if congress fails to act by 2013, an enforcement mechanism would take place where $1.2 Trillion in spending cuts would occur through 2021; Medicaid, Social Security and Medicare benefits would be exempted. There would be caps on Medicare cuts, any cuts would be limited to providers. 

The President also has veto power to end any extension of the Bush high income tax cuts to the wealthy, raising nearly $1 Trillion via that route.

The spending cuts could be hard felt by the Washington metropolitan area no matter which outcome becomes reality; it is particularly worrisome for defense spending that still resides as a significant percentage of the D.C. area economy via defense contractors involved in industries from information technology to aeronautics.

House prices in the area bucked the trend of deep price declines, common place in cities like Miami and Los Angeles, because of the perception of a consistent and strong job market in the area. The talk of deficit reduction alone and now knowing the end of spending increases is on the way could trigger a negative outlook for a region that is known as the strongest and most resilient economy in the nation.

Stocks, Trading and Investing