Washington Post: Fiscal Cliff Deal Does Not Resolve Debt Limit, Other Problems

Wednesday, 02 Jan 2013 10:56 AM

By Michael Kling

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The fiscal cliff deal does nothing to resolve the debt limit, high unemployment or soaring government debt, according to The Washington Post.

The government faces the catastrophic prospect of default if Congress doesn't raise the debt limit within the next two months. The federal government has already reached its debt limit, and the Treasury Department is taking "extraordinary measures" to meet debt payments.

A recession is likely if Congress doesn't raise the debt ceiling and the country defaults, The Post reports. Even if it does raise the ceiling, continued wrangling could roil financial markets and slow the recovery.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

The compromise doesn't remove the uncertainty that's been plaguing American businesses. With the debt ceiling issue unresolved, American businesses may be reluctant to hire more employees and consumer spending may be more constrained.

About 12 million Americans remain unemployed, but the settlement actually makes the problem worse by allowing the payroll tax cut to end, which takes money that would have been spent in the economy out of the pockets of Americans.

"What’s challenging is that we’re still going to have some slowing in growth because of the tax hikes," Michael Feroli, chief U.S. economist at JPMorgan Chase, told The Post. “What’s not good is that deficits are still going to be large and it doesn’t begin to touch the longer-term horizon.”

And despite the tax increase for wealthier Americans, the deal does nothing to reign in the government's skyrocketing debt. Spending will escalate faster as baby boomers retire and healthcare costs for the aging population rise.

"We have real problems in Medicare that we’re not addressing at all — such as the fact that healthcare costs continue to rise faster than the economy,” Leonard Burman, a professor at Syracuse University, told The Post. “The fact is we can’t spend unlimited amounts of money on healthcare.”

The settlement does provide benefits, according to The Post, such as avoiding across-the-board tax increases, preventing a recession, renewing unemployment benefits and raising at least some additional revenue.

Many other observers criticized the agreement.

“The deal … is truly a missed opportunity to do something big to reduce our long-term fiscal problems, but it is a small step forward in our efforts to reduce the federal deficit," Erskine Bowles and Alan Simpson, who co-chair the president’s National Commission on Fiscal Responsibility and Reform, stated in a press release.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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