Debt ceiling: Details on tentative deal

Yahoo Finance senior columnist Rick Newman breaks down the outlook on the tentative deal announced between President Biden and lawmakers.

Video transcript

- Well, the debt limit agreement forged by President Biden and House Speaker, Kevin McCarthy, faces a crucial week. And if this deal does reach the finish line, it may serve as a precedent here for the debt ceiling process. With more on this, Yahoo Finance's Rick Newman. And Rick, what do you mean about that, just in terms of what this could mean going forward?

RICK NEWMAN: Well, for debt ceiling geeks, one of the interesting elements of this deal is that it does not actually raise the borrowing limit, which is what basically has been the custom. What it does instead is it just suspends the debt ceiling.

So what Congress typically does is they actually add dollars to the borrowing limit, so it goes up by another trillion dollars or another 1 and 1/2 or $2 trillion, or whatever the number is.

That is not what's happening this time. They're actually using a point in time. So they're saying, we are suspending the debt ceiling. In other words, there is no ceiling what whatsoever until January 1 2025. And the point of that, obviously, is to get past the 2024 elections and then kick it into 2025.

But what I see there is a big opening. Because if you can just suspend the debt ceiling, then you can just repeal it all together. So if Congress can say, we're going to suspend it for a little while, my contention-- and there are many analysts who feel this way-- is, why don't you suspend it forever? Just get rid of the whole, stupid thing so that we wouldn't have any more debt ceiling showdowns which have become self defeating in their own right.

I mean, we've talked on this show many times, we've seen an increase in short-term borrowing costs for the United States because of the very showdown that we saw this week. So the thing itself, the debt ceiling itself, has actually driven up borrowing costs for the government. What they're trying to do, theoretically, is address this national [INAUDIBLE]. They're actually making it worse.

So it has become-- it is completely self defeating at this point. It serves no useful purpose. There are many analysts I've written about this who will tell you this, we should just get rid of it. And maybe if we're lucky, that's what Congress will do in 2025.

- Yeah, a number of economists are saying that we should get rid of this. Rick, what do you think about this deal right now? The fact that it would extend beyond the 2024 election. Just how significant that is for the White House, is it?

RICK NEWMAN: This whole thing is small potatoes, this deal. So, you know, you're going to hear the politicians congratulating themselves. We made a deal, it was tough, but we did what needed to be done. They could have just raise the debt ceiling without any of this.

So, I mean, to get a little bit into the details, it's going to freeze spending for only 15% of the federal budget. So 85% of the whole federal budget is exempt from this deal. And they did absolutely nothing to address the real problems, which are-- mostly, it's health care costs but it's also Social Security. The three big programs are Social Security, Medicare, and Medicaid, almost untouched. Social Security, the other one completely untouched.

And some of these so-called budget cuts are sort of like handshake agreements, they call them side deals, that may not actually be in the legislation. And it's like, this is a suggestion, which we might cut this in the future, which means, guess what? Ain't ever going to happen.

So, OK, we're going to get a little bit of spending cuts, but it's not going to add up to much. And then what the Congress is going to do in the future is they're just going to overrule a lot of this through future legislation. Why do we do this? Why do we do this?

- It's all avoidable.

RICK NEWMAN: It's so stupid.

- --listening to us, and we'll be able to have it suspended for the foreseeable future. Right, Rick Newman, great stuff. Thanks so much.