The debt ceiling: Is the U.S. headed for fiscal disaster?

“A new Rubicon has been crossed,” said Zachary Karabell in TheDailyBeast.com. The U.S. government officially hit the $14.3 trillion debt ceiling this week, meaning it no longer has the authority to borrow money to pay its bills or its creditors. The U.S. Treasury began a series of “accounting sleights of hand” to free up money, but Treasury Secretary Timothy Geithner says he can only juggle the books until Aug. 2. If Democrats and Republicans fail to agree to a debt ceiling increase before then, the U.S. government might be forced to default on its loans. Interest rates would soar, the dollar and the stock market could plunge, and a “worldwide credit crisis” could ensue. But the “pathway to a deal remains unclear,” said Damian Paletta and Carol E. Lee in The Wall Street Journal. Republicans see the debt ceiling as leverage to negotiate big cuts in federal spending, including Medicare and Medicaid. They’re demanding $2 trillion in spending cuts over five years in exchange for their vote. Democrats insist that any cuts must be accompanied by tax increases on the wealthy. With only 11 weeks to go before Geithner’s deadline, there is growing fear of political deadlock—and disaster.

Pay no attention to the Democratic Chicken Littles, said Stephen B. Meister in the New York Post. Geithner and President Obama originally warned of dire consequences if the debt ceiling was breached on May 16. “Well, here we are,” and there’s “no sign that the sky has fallen.” Now, Aug. 2 is apparently the “hard date” for “financial Armageddon,” but Geithner will surely find a way to push that date back, too. The real crisis lies a few years down the road, when this country’s chronic deficit spending finally catches up with us, causing a “fiscal supernova.” Credit House Speaker John Boehner for finally taking a stand on that spending, said Kyle Wingfield in The Atlanta Journal-Constitution. It’s our children and grandchildren who will inherit the reckless debts we’re now accumulating, including this year’s $1.5 trillion deficit. Creating a “political price for new deficits and debt” is the only way to force Washington to stop spending trillions we don’t have.

Sounds like blackmail to me, said Paul Krugman in The New York Times. The government currently pays “roughly a third of its bills” with borrowed money. So if federal borrowing is suddenly cut off, Social Security and Medicare might stop issuing checks, and “seriously bad consequences would follow.” Unfortunately, the Republican Party has become so radicalized that it’s “willing to bring down the economy unless it gets what it wants.” That danger is real, said Jim Tankersley in TheAtlantic.com. What if Tea Party freshmen revolt over a reasonable compromise with Democrats, or talks collapse? Any hint that negotiations are breaking down would send financial markets into free fall, and trigger another recession.

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No need to panic, said John Dickerson in Slate.com. “We are in the midst of a familiar story line.” As negotiations continue, Democrats will complain that Obama is conceding too much to the Republicans, while the Tea Party will claim that “House GOP leaders are selling out.” Obama will tell “both sides to stop playing politics,” and—just in the nick of time—Congress will finally “agree to raise the debt ceiling, averting an economic crisis.” This exact scenario played out in the recent government shutdown talks, and in the standoff over the Bush tax cuts. There’s no reason to believe it won’t end the same way this time.