More Brinkmanship

There's really no end in sight for America's fiscal mess, and its political brinkmanship. Congress' after-midnight-New-Year's-day-2013 patch did almost nothing to reverse a now 4-year string of annual trillion-dollar budget deficits, or the cumulative outstanding US government debt of some $16 trillion (an amount that now exceeds the nominal value of the entire US economy). The New-Year's day deal, which among other measures raised tax rates for the top 1% of income earners, and left everyone else's unchanged, may increase government revenue by some $66 billion in a year, an amount equivalent to about 0.5% of total government debt. Even President Obama conceded that "we still have deficits that have to be dealt with", perhaps the understatement of 2013.

For several years now, US politicians have decried the political and economic dysfunction in Europe - rightly so. But to view incompetence on at least a comparable scale, they need only gaze into the nearest mirror. America will once again be stepping to the edge of a cliff some time in February, when its leaders will fight again over raising the debt ceiling. Lines in the sand have been drawn already. They were last drawn in the summer of 2011, when, although the borrowing limit was ultimately raised (for the 11th time since 2001), politicians essentially agreed they couldn't agree about fiscal policy, and America's credit rating was promptly downgraded. Thus, a few days after the New-Year's deal, Republican Senate Minority Leader, Mitch McConnell, drew his line: "The tax issue is finished, over, completed. President Obama got his rate hike in last week's fiscal cliff deal. Spending cuts must be the agenda from here", and, "Now that we have resolved the revenue issue, tax reform ought to be revenue-neutral". Democratic House Minority Leader, Nancy Pelosi, simultaneously drew her line, noting "we got high-end tax, changing the rate to 39.6%, but that is not enough on the revenue side", and concluded, "any link between raising the debt ceiling and cutting spending won't happen".  In his weekly address to the nation on January 5, President Obama weighed in as well, saying "he will not compromise" over his insistence that Congress lift the federal debt ceiling, and that, "the consequences (of not doing so) for the entire global economy could be catastrophic".

America technically reached its self-imposed borrowing limit late last month, but the Treasury Department has used some accounting tricks to postpone the inevitable for a month or two. Watch as the Republicans, still smarting from their tax rate compromise last week, use the debt ceiling negotiations as leverage to enact government expenditure cuts. And watch Democrats fight to "protect seniors and the poor". And most importantly, watch for new statements from the world's bond-rating agencies, as America's debt clock keeps ticking.