Archive for June 18, 2012
Republicans in Congress laid down the law in July, 2011: no extension of the debt ceiling unless President Obama agreed to severe fiscal restraints.
Amongst talk of a $4 trillion “grand deal”, talks broke down repeatedly, and finally President Obama and Speaker John Boehner made a joint announcement: a “supercommittee” made up of six Democrats and six Republicans, six Representatives and six Senators, would sit down and negotiate a “take it or leave it” deal for Congress to pass without modification. If the supercommittee failed to come to an agreement by a Thanksgiving deadline, then the unthinkable would be triggered: a deal to cut a half trillion dollars from Democrat-favored education, transportation, and Medicare programs and another half trillion from the Republican-favored Department of Defense, on December 31, 2012, at the same time $5 trillion in Bush-era tax reduction would expire in accordance with the agreement resulting from a similar showdown at the end of 2010. Everyone hated the deal, so it was the best possible deal to reach.
There was a brief flirtation with the debt ceiling again early this year, but the Republicans in Congress declined to call attention to it and the ceiling was raised with very little fanfare.
The economy has been growing, albeit slowly, hitting a growth rate of 2.2 percent during the last quarter. That fragile recovery is endangered, almost everyone agrees, if Congress fails to act. As Congress is adept at failing to act, that seems a possibility worth contemplating.
A recent Congressional Budget Office report warns of a “fiscal cliff” if Congress does nothing in the next few months. They project that the economy will contract by 1.3 percent if Congress fails to act. Mark Zandi, Chief Economist at Moody’s Analytics, estimates that economic growth would be slowed by 4.6 percent if the agreed-to measures went into effect. Either of these scenarios would send the United States into a second recession, perhaps even another depression. (See U.S. Economy, 1937.) (more…)