January 14 2013
Worse than a Fiscal Cliff: The Fiscal Storm
It has been said we avoided the fiscal cliff, yet three upcoming fiscal negotiations will pose even greater fiscal and economic threats should Washington fail to cut spending in a responsible manner.
First, the debt limit was reached in December, and some experts expect the Treasury to run out of ways to pay interest on the debt between February 15-March 1. This would constitute a default on the federal debt, hurt job creation, jolt markets, and could increase interest rates paid on the federal debt.
Second, the sequester, which constitutes across the board spending cuts equally from defense and other discretionary spending, will begin March 1. Instead of setting priorities and cutting spending strategically, the fiscal cliff debt deal raised deficits by $4 trillion and pushed addressing the sequester the sequester to the new Congress.
Third, the federal government runs out of funding on March 27. Thus far, the Senate has failed to pass a single appropriations act, and unless Congress can either agree upon another stopgap or come to consensus on funding levels, the federal government will shut down on March 28. Such actions would stunt markets and lead to the furlough of thousands of federal workers.
Collectively, these three events leave job creators holding their breath uncertain of the economy’s direction. House Republicans have made it clear they will not raise the debt ceiling unless spending cuts are made, though Speaker Boehner is working to convince his caucus otherwise. A government shutdown has also been floated around as a possible bargaining chip.
These two options are not permissible, yet may occur if the President and Senate Democrats do not come to the bargaining table on spending reform. Republicans are faced with a choice between two evils, and if they are going to place their negotiation eggs in any basket, they should keep our nation’s promises to our creditors and focus on creating the right spending package for fiscal year 2013 and beyond.
It is pathetic we have reached the point where cutting spending means government shutdowns, defaulting on our financial commitments, and instating spending cuts designed to cause flinching instead of fiscal reform.
Yet a downgrade of our federal credit rating could occur if spending reductions are not put in place, and fiscal reform must take place.