I am optimistic about US economic chances in 2013 and beyond: on energy, housing, production, even possibly the labor market. But optimism — which is a feeling — should also be a credible, reasonable thought. So the opposite of any “feeling” must at least be broached, analytically speaking. One possible economic risk, then, is the continued existence of the so-called “debt-ceiling” debate, which is basically a GOP attempt to find the leverage necessary to impose radical cuts upon government spending. Standard & Poor’s downgrade of US credit on Aug 5 2011 — S & P account, NY Times account — came as a direct result of GOP strategy: telling Obama, if you want to raise the debt ceiling, name spending cuts and cut them. Which would have been a perfect outcome for the GOP: spending cuts, with none of the backlash that would come from being the author of the spending cuts. So they held the possibility of default as “hostage” in an attempt to force Obama into naming spending cuts. As a result, S & P cut the US credit rating, and, coincidentally or not, China reduced its holdings of US treasuries immediately following the debacle. In fact, China owns fewer US treasuries today than it did in July 2011 (data here and here).
But did economic damage actually result from the debt-ceiling negotiation of 2011? Ramesh Ponnuru, of the National Review, a mostly hack periodical at which he is an exception, provocatively predicts, though here for Bloomberg, that 2013 will bring:
another debt-limit fight, which will cause another credit downgrade that will again have no detectible influence on the markets in labor, stocks or credit.
I think Ponnuru is wrong. I think the initial debt-ceiling debacle had real economic impact (link). But to be honest, the actual data on GDP and jobs support his position that the 2011 debt-ceiling debacle had little discernible real-world impact. Perhaps he’s right. Perhaps the 2013 debt-ceiling debacle will be mere “noise,” too. If so, tailwinds will be that much stronger.