Thoughts about the 'Sugar-Coated Satan Sandwich'

One Congressman called the debt-ceiling deal a sugar-coated satan sandwich for squeezing middle- and low-income Americans, who already have slowed down their spending and U.S. economic recovery.The debt-ceiling crisis has been averted, but at what cost? Many economists, businesses and average American families worry the economy is heading south again, maybe toward a double-dip recession.

As Congress waged partisan and ideological war over the debt ceiling, federal deficits and national debt, consumer spending began to sag. Reports out this week indicate Americans spent less last month for the first time in two years. And that's before the impact of any federal spending cuts are actually felt.

Economic columnist Paul Krugman and others have warned screwing down federal spending at this fragile point in the economic recovery was misguided and destined to return the U.S. economy to recession. Republicans generally have dismissed such claims, saying the best way to boost the economy is to reduce federal spending and get out of the way of private investment.

But investment follows demand and demand is lagging. The corporate sector has seen rising profits, stockpiled cash and cannot access low-interest debt. None of that matters if your customers aren't buying. Some of those customers are families receiving financial assistance in one form or another from the federal and state governments.

Congressman Emanuel Cleaver, leader of the Congressional Black Caucus, may have captured the view of many by describing the two-step debt ceiling compromise as a "sugar-coated satan sandwich." Cleaver was referring to spending cuts that affect low and middle-income Americans without raising taxes on wealthier citizens. But it could turn out to be prophecy on the macro-economic impact of the cuts.

Krugman wrote, "[The deal] will damage an already depressed economy. It will probably make America's long-run deficit problem worse, not better."

Oregon Public Broadcasting political commentator Bill Lunch said today the debt-ceiling package could jeopardize job-creating projects in Oregon such as light rail extension to Milwaukie and even the Columbia River Crossing project.

Many disagree with Krugman's prediction and go as far as calling the Nobel Award-winning economist a nut case. For the moment at least, consumers are acting like they believe what Krugman says.