Fiscal Cliff: What Next?

3 Jan

Fiscal-cliffThe U.S. hit its statutorily mandated debt level ($16.4 trillion) three days ago. This means the Treasury Department will use a number of special measures to keep the books open. At most, this will buy a couple months. Talks should begin in earnest around Valentine’s Day. At stake: a possible governmental shutdown. Recall what happened the last time that lawmakers discussed the nation’s debt ceiling: a two-week period in August 2011, in which the nation’s credit rating was downgraded, raising borrowing costs, and the economy almost entered a double-dip recession. President Obama wants Republicans to quickly agree to increase the debt limit, Republicans want to use their acquiescence as a bargaining chip. Moody’s today said it would monitor what happens and didn’t rule out possibly downgrading U.S. debt: “This confluence of events adds uncertainty to the outcome of negotiations.” Prepare for a sequel of August 2011.

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