More On America's Debt Crisis.

With the exception of a few eccentric outliers who wrongly think that you can run a national economy in the same way you manage a household budget both Republicans and Democrats are in broad agreement that America's debt ceiling needs to be raised and that increase needs to be off-set by a package of spending cuts and tax increases. Although there is still some friction over exactly what spending needs to be cut and exactly which tax loopholes need to be closed the main sticking point is over how much the debt ceiling needs to be raised by and by extension how long that increase will last for.

The Republicans want an increase of around $900billion which the US Treasury estimates will last until early 2012. The Democrats want an increase of around $2.5trillion which the Treasury estimates will last until early 2013. On a purely technical level this is a complete non-argument because in terms of national economic policy anything under 5 years counts as short term and anything under a year is not worth consideration. So only raising the debt ceiling for six months won't give the financial markets the stability they're looking for meaning that the effect would be the same as if the ceiling wasn't raised at all. Unfortunately neither political party are worried about that aspect and are instead trying to use the issue to gain an advantage at the 2012 Presidential election.

I think this is more likely to backfire on the Republicans then the Democrats because the US economy is not suddenly going to get better because the debt ceiling's been raised. That means that at the time of the 2012 election economic growth is still going to be quite flat and things are going to look and feel pretty much as they do now. This gives the Republicans the perfect opportunity to campaign on the economy and Obama's competence (or lack thereof) as leader. However if the debt ceiling argument comes up again before then the Republicans risk getting their hands dirty and making it look like the economic problems are their fault and the only failure in Obama's leadership is its inability to overcome irrational Republican stubbornness.

That said I do like the idea of doing the tax aspect now but doing the spending aspect in two tranches. One now and the second in about six months time. That will allow for progress to be checked and refinements made if required all within the stability provided by having the debt ceiling already raised until 2013.