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BUSINESS GUARDIAN www.guardian.co.tt SSEPTEMBER 2013 • WEEK FOUR
America s fiscal outlook may be grim, but it is
less grim than it was. On Sept. 17 the Con-
gressional Budget Office said that the deficit,
which hit a peacetime record of 10 per cent
of GDP in 2009, would fall below 4 per cent
of GDP this year and hit 2.1 per cent by 2015.
The federal debt is still on a long-term upward trajectory,
but that trajectory is lower than the CBO thought it was last
year, thanks to two things. First, the government has changed
the way it measures GDP. Second, health-care inflation, long
sky-high, has fallen to a modest 1 per cent. That makes the
government s vast obligation to pay for old and poor people s
healthcare look less onerous.
Strangely, the improving economics of the debt have done
little for the rotten politics. Both the president and Congres-
sional Republican leaders are anxious to avoid a repeat of
their standoff in August 2011, when they brought America
close to an unnecessary and catastrophic default by refusing
to agree on the terms under which the debt ceiling should
The debt ceiling is the legal limit to federal borrowing.
Since the Treasury borrows 19 cents of every dollar it spends,
Congress has to keep raising the debt ceiling or Uncle Sam
will not be able to pay his bills. When Republicans and Democ-
rats play chicken with the full faith and credit of the United
States, it undermines confidence in the economy and dents
the squabbling lawmakers approval ratings. Nonetheless, they
seem poised to do it all again.
On Oct. 1 much of the federal government will shut down,
unless Congress votes to fund the roughly 35 per cent of the
budget that requires annual authorization. Then, around mid-
October, the Treasury will hit the debt ceiling. Unless Congress
votes to raise it, the Treasury will have to stop paying bills
such as salaries, pensions and, in the extreme, interest on the
national debt, which would trigger a cataclysmic default.
In theory a deal should be within grasp. Obama would like
to replace the "sequester"---across-the-board spending cuts
that resulted from that last showdown, in 2011---with more
targeted spending cuts and higher taxes. With no leverage to
force the Republicans to agree, however, he almost certainly
would sign a budget that kept funding at the sequester s
levels. He also wants the debt ceiling raised with no strings
attached. Since Republicans did that last January, they should
be prepared to do so again.
Still, several dozen conservative Republican congressmen
are blocking the way. They want to use the budget and the
debt ceiling to gut Obama s health-care plan, the main pro-
visions of which are scheduled to take effect by January. So
far 74 of the 233 House Republicans have sponsored a bill
that would wipe out any funds for implementing Obamacare
next year, while funding the rest of the government.
Obama has vowed not to delay Obamacare or to negotiate
on the debt ceiling, however. This has saddled Republican
leaders with a dilemma: how to satisfy their members Quixotic
longing to kill Obamacare without committing political suicide
by shutting down the government or causing a default. Last
week Rep. John Boehner (R.-Ohio), the Speaker of the House
of Representatives, and Republican Eric Cantor, the Majority
Leader, proposed passing two bills, one that defunded Oba-
macare and another that funded the government. The Senate
could reject the first and pass the second. Many conservatives
think that Obama is bluffing, however, so they forced Boehner
to back down.
"That strategy is not one that would encourage any kind
of rethinking (by) Democrats," says Mark Meadows, adding
that he has been to 15 town halls in recent weeks and, by a
ratio of three or four to one, his constituents oppose Oba-
As this article went to press, Republican leaders in the
House were preparing a bill that would fund the government
through mid-December while defunding Obamacare. The
Senate could strip out the Obamacare provision, pass the rest
and return it to the House.
The House also was mulling a separate plan to tie an increase
in the debt ceiling to a delay in Obamacare, approval of the
Keystone XL oil pipeline and tax reform. Neither the Senate
nor the president is likely to agree, so a shutdown remains
That is not what Boehner wants, or what most observers
expect to happen. Until Boehner establishes a firmer command
of his troops, however, it is unclear how it will be avoided.
@2013 Economist Newspaper Ltd. (Distributed by the New York
Once more to the brink
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