The Next Fiscal Cliff

The fiscal cliff is dead—but the era of semi-permanent fiscal policy crisis is still with us. Indeed, if anything, the resolution of the cliff has simply served to set up a quantitatively smaller but qualitatively much more terrifying cliff two months from now. That’s when the country once again reaches a crisis over the lapsing of the Treasury Department’s authority to borrow money. Once upon a time, when Congress wanted to instruct the federal government to spend more money than it was going to collect in taxes, it would specifically authorize bond sales. During World War I this was deemed inconvenient, and Congress instead generically authorized the borrowing of a bunch of money to finance its appropriations. Since this number was specified in nominal dollar terms, inflation and economic growth ensured that over time we would hit this new debt ceiling under any conceivable fisca...