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Goodbye Fiscal Cliff, Hello Debt Ceiling

The U.S. has been on the edge of an economic precipice since the election, as the two parties play chicken with the federal budget. Fortunately the economy has been more resilient than the political system has been flexible, and the damage so far has been contained.

But the next battle over the debt ceiling has no easy answer and a lot of ugly decisions for Washington to make, as the WSJ reports:

The showdown over the nation’s debt ceiling could force the government to consider drastic steps to manage its limited cash, including delaying trillions of dollars of payments to employees, Social Security recipients, contractors and others.

The Obama administration has said it has no backup plan to pay the government’s bills if Congress refuses to raise the $16.4 trillion federal borrowing limit. The White House said Saturday in a statement that “there are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default.”

As we saw in the fiscal cliff episode, the Democrats have the high ground politically. Obama won a solid reelection and his party strengthened its hold in the Senate and won the popular vote in the House. That’s going to make life hard for the GOP as its leaders try to get as much as they can in spending cuts.

The base wants the GOP to fight hard, but the public does not want brinkmanship. It’s going to be an interesting winter for the House GOP.

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