After Election, Debt Ceiling Will Return


While it is of course too soon to say anything definite, it appears likely that control of the government will continue to be split between the parties after election. Almost every polling aggregator and prediction market predicts that the Democrats will probably control the Senate and White House, but that Republicans will retain control of the House- leaving control of government divided.

If control is divided, both parties will need to cooperate in order to resolve two imminent financial crises: the debt will hit the debt ceiling by the end of this year, and a series of automatic tax hikes and spending cuts will go into effect in early January. Unfortunately, the sequestration will neither eliminate the deficit, nor come into effect before the debt ceiling is reached- leaving the United States without sufficient legal grounds to continue operating the government. The lame duck congress and President will therefore need to make significant policy decisions in the coming months- and even if they are able to resolve the debt ceiling manner in a conventional and uncontroversial manner, the incoming congress will still need to deal with the impact of sequestration and future debt ceiling crises.

If Romney is elected President, the problem could be equally severe. The Democrats are likely to retain control of the Senate, leaving them with the ability to threaten a government shut-down if Romney doesn’t accede to their (unknown) demands. While the Romney campaign has argued that, if elected, he would be able to prevent a crisis, Senate Majority Leader Harry Reid has made it clear that Democrats are likely to adopt the same tactics the Republicans used in the previous debt-ceiling crisis. (While the Democrats in Congress tend to be less ideologically unified than the Republicans, Reid will only need to 41 senators to filibuster any proposed solution to the debt ceiling- leaving plenty of room for some senators to defect.)

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