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From the Fiscal Frying Pan Into the Debt Ceiling Fire


A new study warns there will be far less time than before to work out a new agreement before the Treasury hits the debt limit and begins defaulting on some of its borrowing and government obligations.

"From a market point of view, going off the fiscal cliff would have some impact, I don't know what it would be," Bell told the Fiscal Times. "It certainly would not be bad for the bond market. But the debt ceiling is a different order of magnitude. And right now, nobody cares about that except Bernanke."

Bernanke stresses that failure by Congress to raise the debt ceiling again would impose heavy costs on the economy. Senate Majority Whip Dick Durbin, D-Ill., said in a speech yesterday that the debt ceiling and fiscal cliff should be coupled together in negotiations, since no one wants to slog through tough talks on the budget and then repeat the exercise a few weeks later. Echoing that concern, Senate Majority Leader Harry Reid, D-Nev., told reporters yesterday, "We would be somewhat foolish to work out something on stopping us from going over the cliff and then a month or six weeks later, the Republicans would pull the same game they did before," referring to the calamitous debt-ceiling negotiations of 2011.

Robert D. Reischauer, a former director of the Congressional Budget Office, said, "It's likely Republicans will insist on sort of limited increases in the debt ceiling" that would give them some leverage in their negotiations with Obama and the Democrats during the lame duck session and early next year.

Indeed, after President Obama urged Boehner at a recent White House meeting to raise the debt limit before the end of the year, Boehner responded, "There is a price for everything," according to Politico.

A hard and fast deadline for the Treasury running out of cash will depend on a number of "wildcards," according to the Bipartisan Policy Center report. Those include whether the tax filing season is delayed because Congress fails to take action to prevent an expansion of the Alternative Minimum Tax by the end of the year; possible emergency spending legislation to assist New York, New Jersey and other states that were clobbered by Hurricane Sandy, and monthly fluctuations in government spending and revenues.

"If the debt limit is not increased as part of the lame duck negotiations, policymakers will be left with only a matter of weeks to ensure that all federal financial obligations continue to be met in full and on time," the center's report concluded.

Editor's Note: This article by Eric Pianin originally appeared on The Fiscal Times.

For more from The Fiscal Times:

Great Expectations for Carney at Bank of England

Cliff Abyss: AMT Tax Will Body Slam Middle Class

Who Should Pay for Big Bird and Downton Abbey?

Follow The Fiscal Times on Twitter @TheFiscalTimes.
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