Let's All Go Cliff Diving But Please Don't Mess With the Federal Debt Limit

So, it certainly appears that we are headed over the fiscal cliff (kind of a misnamed and bad analogy if you ask me...modest across the board tax hikes and spending cuts are hardly a "cliff", but I'll go with the commonly understood language), barring an eleventh hour deal.

There are a few ways that things could still play out differently - Speaker Boehner could decide to allow a vote on extending lower tax rates for those below $250K, which seems almost sure to pass with near universal Democratic support and a smattering of Republicans who think that something is better than nothing.  I could also still see a "kick the can down the road" type of bill that delays the sequestration.

But frankly, I'm happy to go cliff-diving.  It'll be fun to watch the federal deficit shrivel up to a fraction of its former self overnight.  We'll actually be living within our means (or closer to it) when the cliff happens.

Alas, it will almost surely be temporary.  President Obama is no doubt looking ahead to January 3rd, when the new Congress goes into session and he has more House and Senate seats to work with.  He still obviously won't have a majority in the House or the 60 seats to stop a filibuster, but the difference between having to win over 17 House Republicans instead of 25 and 5 Senate Republicans instead of 7 will make a difference in how good a deal the President can get.

Regardless, we will survive a few weeks of Clinton-era tax rates, fragile economy and all.

The meatier issue staring us in the face is the debt-ceiling, which the country is scheduled to hit on Monday.  There is a little time on the clock - similar to last year, the Treasury can buy some time by not making pension contributions and delaying paying for other expenditures - typically these tricks can buy about two months, although they will likely buy longer than that if we also go over the cliff and borrowing needs are a lot less.

Coinciding with the debt ceiling issue is the issue of the remaining budget for Fiscal 2013.  The continuing resolution that everyone agreed to in order to avoid this showdown at election time covered funding of the federal government through March of 2013.  Beyond that, new legislation will need to be passed.

I mention these two issues together, because it poses an obvious question - why are Republicans threatening to mess with the debt ceiling again?  They have control over what we spend beyond March.  The House can choose to pass much smaller appropriations, if it deems fit to do so.  Charge less on the credit card if you wish, but quit threatening not to pay the bill.  The whole notion that congress can refuse to permit the debt that is necessitated by laws it passed seems absurd every time it comes up.  And failure to raise the debt ceiling will have much more severe consequences over the long term than going over the fiscal cliff for a few weeks.

Let's hope rational heads prevail and it doesn't come to another default showdown.  But given the history, anything is possible.

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