- The bulk of the fiscal cliff issues will be pushed into 2013. This sets up a showdown in March when the debt limit can no longer be extended.
Americans will be exhausted by this process. The poll ratings for the Senate, House and Obama will fall to record lows. The commentary from every segment of society will be against the ineffective government the country has. The ratings agencies will chime in with more warnings that the US credit ratings are at risk. Foreign leaders will speak openly that the USA is losing its position of leadership. The foreign and domestic press will have a field day.
The threat of a government shutdown, and a chance for a “Hoover Legacy”, will force the President to fold in March. The resulting “Deal” will bring modest increases in taxes ($800b over ten-years) and introduces real cuts in both Medicare and Social Security (age eligibility, means testing benefits and changes in inflation adjustments). The debt limit will be extended until January of 2015 (after mid-term elections).
Liberals will hate this result, so will conservatives. The reality will be that the steps taken will have very little consequence to the economy, budget or debt profile in the first few ye