‘Fiscal Cliff’ Deal Does Little To Tame Threats From Debt Ceiling, High Unemployment Rates
By Zachary A. Goldfarb, Updated: Tuesday, January 1, 8:35 PM
The deal passed by the Senate early Tuesday would head off the most severe effects of the “fiscal cliff” by averting a dangerous dose of austerity but still leaves the economy vulnerable to both immediate and more distant threats.
The agreement, approved only hours after the government hit the limit on federal borrowing, fails to defuse the prospect of a catastrophic national default two months from now. The deal does not raise the debt ceiling, leaving the Treasury to use what it calls “extraordinary measures” as long as it can to pay the government’s bills.
Nor does the package do anything to address stubbornly high levels of unemployment, with 12 million Americans out of work. Instead, the deal could aggravate the problem. By allowing the payroll tax cut to expire, the deal takes money out of the hands of many Americans, sucking it out of the economy and slowing economic activity.
And finally, the deal is too modest to fundamentally tame the government’s soaring debt. The nation’s long-term finances remain in peril with federal spending projected to rise dramatically as a wave of retiring baby boomers turns to the government for help in paying for ever-more-costly health care.
Michael Feroli, chief U.S. economist at J.P. Morgan Chase, cautioned that the deal is a stopgap measure at most.
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