In spite of the obvious threat of default, I am curious to see how things play out here.
Does the US end with
- no agreement,
- savage cuts together with an increased ceiling,
- a flawed compromise, such as a robust package of cuts and an increase in the debt ceiling,
- a simple increase in the threshold,
- or (the least likely) a solution that helps stimulate growth, encourage job creation and/or reduce the deficit using tax policy.
I put these in what is my view of the reverse order of harm, with the last the least harmful.
I take the point that the constitution is likely to frustrate one of the ambitions of the extreme wing of the Republican party. They are not likely to get their cuts.
On the other hand, they may be in a position to prevent passage of an increase in the debt ceiling. Another disaster and likely the greatest one.
They are also in a strong position to prevent any kind of continuing stimulus: thus what I believe is the least bad solution from an economic perspective is also very unlikely to occur.
So will this scenario yield a mildly positive/harmless outcome (a threshold increase), a weak-tea compromise, or a failure of governance (no agreement/default)? These three are the only ones that are likely. The constitutional structure appears to rule out the best and second-worst options.
I think it is not good for the world that a quarter of the population of one country is almost capable of causing a global depression.
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