If you’ve enjoyed the fiscal cliff political theater that has consumed Washington over the past two months, you are going to love 2013. Yes, the White House and Congress did finally agree on a deal that prevented about $4 trillion of a scheduled $4.6 trillion tax hike, but there are many fiscal fights still scheduled to occur throughout the New Year.
First, in about six weeks, the Treasury Department will reach its legal borrowing limit. At that point, Treasury Secretary Tim Geithner will not be allowed to finance government spending by issuing new debt and will have to pick and choose which of the federal government’s many spending obligations it will and will not pay. Contra what some on the left believe, the 14th Amendment of the U.S. Constitution does not authorize Geithner to ignore the debt limit. What it does do is obligate him to make sure the federal government pays off its lenders first. And since the federal government is constantly taking in more money in taxes than it owes in debt service, there is zero danger the U.S. will default on its debt. But everyone else who gets payments from the federal government will be in danger of not getting paid. Since the federal government plays such a large role in economic affairs this will create chaos in the U.S. economy until the issue is resolved.
