Tags: Phillips | debt | ceiling | brutal

Goldman Sachs’ Phillips: Debt Ceiling Battle to Be Tougher than 2011 Fight

Friday, 04 Jan 2013 08:06 AM

By Michael Kling

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This year's battle over raising the debt ceiling will be even more brutal than the 2011 fight, predicts Goldman Sachs economist Alec Phillips.

Before the 2011 battle, Congress had approved fewer spending cuts, Phillips wrote in a report obtained by Business Insider. It raised the debt limit after agreeing to cut $2.1 trillion in future spending by capping $900 billion of discretionary spending and $1.2 trillion from sequestration, or automatic across-the-board cuts.

While controversial, those cuts capped overall spending and did not affect specific programs so generated less political opposition, according to Phillips. Political parties will be sure to create controversy and opposition when they identify specific cuts.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

This time around, Congress has less spending available to cut. Republicans want to match increases in the debt limit dollar-for-dollar with spending cuts. But finding more spending reductions quickly becomes increasingly more difficult.

"These factors imply that the next debt limit increase will be at least as difficult to enact as the last one was," Phillips stated, according to Business Insider. "And there is a clear possibility of breaching the limit and causing more significant disruptions to government financing."

The debt ceiling battle is already getting under way. Republicans hope to use the debt ceiling as leverage to cut spending, while President Barack Obama says he will not negotiate over the limit.

“This debate will re-introduce uncertainty to financial markets and will likely weigh on business and consumer confidence,” economists at Wells Fargo wrote in a report, according to The Washington Post.

The last debt ceiling battle gave a blow to business confidence and prompted Standard & Poor’s to downgrade the U.S. government's credit rating.

Editor's Note:
Startling Proof of the End of America’s Middle Class. Details in the Video

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