- It seems likely at this point that there will be no agreement before Jan 1st given that Speaker Boehner cannot deliver his caucus (about 90% certain of this).
- I assume that Obama will not be so weak as to immediately capitulate to the right wing of the house Republicans (about 90% certain of this too).
- So then we go over the "cliff", payroll taxes and income taxes rise, defense spending falls, etc
- Public blames Republicans, but hard-core right-wing Republicans don't care what the public (aka "liberal media" and "biassed pollsters") think.
- The federal deficit falls, but not to zero, so, very shortly, we hit the federal debt ceiling again.
- Republicans refuse to raise the debt ceiling unless all their demands are met.
- Obama gets to choose between the various constitution-stretching options to ignore the debt-ceiling, or capitulating to whatever the conservative wing of the Republicans will vote for (and never being able to look his progressive friends in the eye again).
- In the meantime, the economy goes in the tank due to the combination of the reduced spending power of the taxpayers and government contractors, and uncertainty over whether the federal government will honor its debt or not.
- Public is furious, but none of the players face reelection for two years, so no change in positions in the short term.
If this really is a game of chicken, who swerves first? It seems like whoever wins this gets to basically dictate most of what happens for the next two years.
In the meantime, seems like we individually would want to sell speculative assets, avoid risky ventures and career moves, reduce spending and generally hunker down until the dust settles.
Dissents or insights welcome in comments.
Update: Wonkblog says that the latest we hit the debt ceiling is February (we actually hit it this week but the Treasury can use the by-now-familiar extraordinary measures to hold it off a few more weeks).