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The Debt Ceiling May NOT be the Big Economic Threat

January 17th, 2013
in econ_news, syndication

belttighteningpiggy300Econintersect:  Much attention has been focused on the economic impacts of the fiscal cliff tax legislation and the imminent debt ceiling debate, but a number of sources mentioned by Business Insider are suggesting that the big economic threat is not receiving the attention it deserves.  These sources believe the big threat comes from the sequester provisions of the 2011 legislation that was authorized by the last debt ceiling deal.

Sequestration is the automatic, largely across-the-board spending reductions to bring projected budget levels in line with the statutory goals. The fiscal cliff tax deal punted the resolution of the sequester provisions into March.  Sources mentioned by BI are Alex Phillips of Goldman Sachs, Sean West of Eurasia Group and Jan Hatzius, chief economist at Goldman Sachs.

Follow up:

Today (17 January 2013) Rep. Paul Ryan (R, WI) doubled down with another proposed punt, this time for the debt limit to be increased for only an unspecified short-term. (Reuters)  That could make March the new January for the debt ceiling debate, as well.  Currently the debt limit is expected to restrict the ability of the government to meet authorized spending starting sometime between mid-February and mid-March.

The National Journal says that House Republicans see the sequester as the fight they want to have, rather than the debt ceiling.

Matt Yglesias thinks that the sequester should simply be "called off."  He thinks more progress would result if the pols simply started over.  He wrote in Slate last year:

Congress should admit the sequester deal that both parties hate was a dumb idea, and just agree not to implement it.

The Eurasia Group lists the entire array of Washington politics only #4 on it's list of 2013 economic risks.  Their top risks?

(1)  Emerging markets (in general) may not provide the economic support that they have in recent years.

(2)  China may destabilize the world economy with increased control of information and a rising military posturing.

(3)  Increased tensions and instabilties in the Middle East.

John Lounsbury

Sources:









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