A year ago, many Americans were appalled when partisan bickering between
opposition Republicans and President Barack Obama’s Democratic Party
pushed the nation to the brink of default on its massive debts. The
political gridlock prompted a downgrade of the U.S. credit rating.
The country now faces even greater financial problems in the midst of a
hyper-partisan atmosphere as November's presidential election
During the debt ceiling debate, a popular newspaper portrayed leading
politicians from the two parties as whining brats in diapers.
Washington was nearly paralyzed by bickering as it tried to make tough
political and financial decisions.
The squabbling prompted Standard & Poor's to make an unprecedented cut
in the U.S. credit rating.
“There had been significant deterioration recently on both the political
and fiscal front -- on the fiscal front, in terms of the government
indebtedness as a share of the economy, and on the political side in
terms of the willingness to arrest that deterioration,” said Nikola
Swann, a key S&P analyst.
Economists say the polarization inherent to this year’s election
campaigns could make Washington’s dysfunctional politics even worse.
Last year’s congressional debate focused on efforts to raise the legal
limit on what the U.S. government can borrow to fund its deficits and
The squabbling worried some investors even when It ended with a deal
that put off some tough political and financial decisions.
So Congress has to deal with the debt ceiling again and also agree on
what to do about tax cuts set to expire at the end of this year.
Without a deal, the government faces drastic spending cuts that will hit
both the military and popular social programs.
U.S. central bank Chairman Ben Bernanke says that could push the nation
back into recession.
the full range of tax increases and spending cuts were allowed to take
effect, a scenario widely referred to as the fiscal cliff, a shallow
recession would occur early next year and about 1-1/4 million fewer jobs
would be created in 2013,” Bernanke said.
Brookings Institution economic scholar Phillip Wallach says he expects
that Democrats and Republicans in Congress will work something out,
“The Republican leadership compromised just enough to make sure they got
a deal done at the last minute, and if you were [willing to make a
wager] you would probably say that’s what will happen again the next
time around because they don’t want to be responsible for plunging the
economy into chaos,” Wallach said.
So Congress and the President have just a few months to finish the
difficult task of reaching agreement on spending and taxes in ways that
do not damage the economy.