Brace yourselves – Treasury Secretary Tim Geithner has estimated that the federal government will again hit its debt ceiling by the end of this year. This less than a year after a debate over raising the debt ceiling lead to turmoil in the markets and a credit downgrade that removed the AAA rating from US debt issues for the first time because of the political deadlock that the issue created. With the issue coming to the forefront in an election year, what’s likely to happen this time? It’s actually quite the catch-22 when you think about it – no one in Congress wants to go into an election having just raised the debt ceiling (and be seen as a free-spender), or having raised taxes/cut spending (and be seen by the impacted groups as the devil incarnate). On the other hand, in polls taken soon after the downgrade last year, the majority of Americans would not have re-elected their incumbent representative – the first time such a result had been the case. I doubt very much either party would risk a similar result in a real election. So what is likely to happen is some sort of punt…some way to keep the debate from the forefront until after the election when it can be dealt with by the lame duck session. Or maybe even a long enough punt to put it into the next Congress in early 2013. Certainly, the likely outcome is not a useful and long-lasting solution – which is what the country is in desperate need of.
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Of course, the debt ceiling isn’t the only potential economic and political threat that this country faces at the moment. There’s also the not-so-small matter of the policy changes that will take effect automatically on January 1st if there are no actions by Congress to delay it. Federal Reserve Chairman Ben Bernanke has termed these changes “the Fiscal cliff” – changes that will take $7 trillion out of the economy over the next ten years through a combination of tax increases and spending cuts that are likely to hurt the still fragile recovery. Some of these are changes that were enacted as a part of the last debt ceiling increase “compromise” after the super committee was unable to reach a decision, some are the expiration of stimulus measures and the Bush tax cuts. Some are other, smaller, measures that have been taken over the years. The solution to this cliff? Some of the items should perhaps be extended…but most should be allowed to occur, spaced out over a few years. But which items come first and which items are extended indefinitely? A difficult and politically charged decision to be sure – so much like the debt ceiling debate, in an election year this will probably just end up being punted to either the lame duck session or into the next Congress without any real solution being found.
So which should we choose? The ceiling or the cliff? Or can we get Congress to take the right action this time – through our votes, petitions and letters?