Hold Onto Your Wallet — “Fiscal Cliff 2.0” is Coming Soon

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(AP Photo/Elise Amendola)

With news that the federal government will hit the “debt ceiling” in mid-October rather than in December, as had been previously predicted, we’re headed toward another contrived “fiscal cliff” crisis. Hold onto your wallet.

Barack Obama has made it clear that he won’t negotiate with congressional Republicans over the debt limit. But because it will now be reached just a couple of weeks after the deadline for a budget resolution at the end of September, that’s only going to be technically correct. As Kevin Drum put it, “everyone’s going to get mighty hazy mighty fast about what exactly is being negotiated.” This is precisely what happened last winter leading up to January’s fiscal cliff deal (which resulted in a tax hike on working people and enough economy-slowing “austerity” to cut growth forecasts significantly).

House Majority Leader John Boehner, (R-OH), promises a “whale of a fight” over the debt limit, now to be wrapped up in the budget fight. While the Republican establishment appears to have backed away from activists’ surreal demand that Democrats kill off Obamacare in order to raise the debt limit, they will ask for other concessions. And Obama has consistently said that he’d entertain some “Grand Bargain,” which might include cuts to Social Security benefits. At the very least, Boehner is going to demand another round of deep spending cuts at a time when those resulting from previous budget battles are already holding back the economy. Economist Dean Baker notes that “government spending as a share of GDP is lower in 2013 than it was in every year of the Reagan presidency except 1988,” and estimates that the sequester and other “austerity” measures enacted in the past 3 years have translated into five million fewer American jobs. 

These debt limit “shenanigans” aren’t very democratic, and Boehner admitted as much, telling the Idaho Statesman, “It may be unfair but what I’m trying to do here is to leverage the political process to produce more change than what it would produce if left to its own devices.” In other words, he’s going to hold the global economy hostage for policies his conservative allies couldn’t achieve through the electoral process.

It’s even more anti-democratic if cuts to Social Security or Medicare end up being part of the negotiations because polls have long shown that majorities of Americans of all parties – even self-identified “tea party” voters — oppose messing with those programs.

And this is all a result of the “party of personal responsibility” threatening not to pay off debts that Congress itself incurred.

While it’s unlikely that we’ll end up actually going over the “cliff,” a miscalculation on one side or the other could result in the limit being breached. If it does, we’ll be in uncharted territory. Contrary to what most people believe, the government will still have to write checks, even if it doesn’t have the power to borrow the funds to cover them.

“There is no prohibition on making expenditures once the underlying law has been enacted,” Stan Collender, a budget expert who writes at Capital Gains and Games, tells BillMoyers.com. “The legal requirements for spending are independent of the government having the cash in hand to make them. There is no ‘subject to the availability of funds’ provision like there is in government contracts. In fact, not issuing the checks is what would be a violation of law.”

What happens then is anyone’s guess. Would banks cash the checks, figuring that Washington will get its act together in short order? Would it roil the financial markets?

We don’t know. But one thing is clear: crisis governance is no way to run a country.

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