Debt ceiling, round two

The USA is once again on course for financial disaster through no fault but their own.

Remember the debt ceiling debacle, when the broken American political system led to the country losing its triple-A credit rating, and nearly resulted in the largest economy in the world defaulting on its debt? Well, joy of joys, in nine months, it's all going to happen again.

The problem is the basic disagreement was never actually resolved, but merely postponed until after the election so that the Republicans could get back to the important business of tearing their party apart with excruciating primaries and loony-fringe candidates. The deal that raised the ceiling required a spending bill to be passed in both houses of congress that substantially removes the deficit. If no such bill is passed, then on January 1st 2013, a whole raft of automatic spending cuts are introduced at once, bringing in what American commentators breathlessly describe as "European levels of austerity".

Not only that, but on the same day those cuts come in, the the Bush tax cuts and the Obama payroll tax cuts both expire, increasing the tax burden on millions of Americans. Oh, and emergency unemployment benefits also time out.

Congress has had ample warning to sort out the mess (almost as much warning as it had before the initial face-off), but yesterday the House of Representatives rejected two possible solutions. The first, a bipartisan bill which has the most chance of passing in the Democrat-controlled Senate, was defeated 382-38; the second, the White House's preferred option, was unanimously rejected 414 to 0. Instead, it seems likely that the House will pass, along strict party lines, Republican Congressman Paul Ryan's bill, which has no hope of passing getting through any Democrats, calling as it does for "draconian reductions in the federal government's commitment to financing health care for the disabled, the elderly, and the poor", in the words of Slate's Matt Yglesias. So the Senate will reject the bill, and the whole damn thing will start again.

Faced with the unappealing task of repeating last summer, Fed chairman Ben Bernanke has weighed in, telling the House Financial Services Committee:

Under current law, on Jan. 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases. I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.

All those things are hitting on the same day, basically. It’s quite a big event.

Barclays Capital has calculated that the combined effect of all these cuts hitting at once would wipe 2.8 per cent off the annualised growth rate for the first quarter of 2013, bringing them from 3 per cent to 0.2 per cent growth. For comparison, the UK – which is voluntarily enacting "European levels of austerity" – is currently forecast by the OBR to have 2.0 per cent growth over the year, and the OECD forecast yesterday had us on minus 0.4 per cent over the first quarter of 2012, with the USA already at growing at 3 per cent annualised.

The worst case scenario is unlikely to happen; just as an actual default was unlikely to happen when the debt ceiling needed to be raised. The most likely outcome is that Congress will simply postpone everything once again, renewing the tax cuts and shrinking, but not removing, the automatic spending cuts. But all of this has led Bloomberg's Clive Cook to declare:

But there’s a much bigger threat to U.S. power [than the growth of China]: the increasingly abject failure of the country’s own political class.

Congressman Paul Ryan. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Quiz: Can you identify fake news?

The furore around "fake" news shows no sign of abating. Can you spot what's real and what's not?

Hillary Clinton has spoken out today to warn about the fake news epidemic sweeping the world. Clinton went as far as to say that "lives are at risk" from fake news, the day after Pope Francis compared reading fake news to eating poop. (Side note: with real news like that, who needs the fake stuff?)

The sweeping distrust in fake news has caused some confusion, however, as many are unsure about how to actually tell the reals and the fakes apart. Short from seeing whether the logo will scratch off and asking the man from the market where he got it from, how can you really identify fake news? Take our test to see whether you have all the answers.

 

 

In all seriousness, many claim that identifying fake news is a simple matter of checking the source and disbelieving anything "too good to be true". Unfortunately, however, fake news outlets post real stories too, and real news outlets often slip up and publish the fakes. Use fact-checking websites like Snopes to really get to the bottom of a story, and always do a quick Google before you share anything. 

Amelia Tait is a technology and digital culture writer at the New Statesman.