The US budget saga (continued)

Stephanie Flanders
Former economics editor

image copyrightGetty Images
image captionPresident Obama said he did not want to just kick the can down the road

No, the US isn't about to default on its debt. I'm sure you never thought it would, but after a day in Washington talking to people on both sides of the argument, I'm struck by the lack of clarity on where the negotiations will end up.

You can see some of my conclusions in my piece for Tuesday night's television bulletins. The good news for the administration is that the Republicans are not talking about seriously adding to the fiscal tightening that is already built into existing plans for 2012, as the president's stimulus package runs out.

Officials are also confident that, one way or another, the temporary payroll tax cut that the president extracted from Congress at the end of last year is probably going to get renewed, either as part of the debt ceiling deal or later in the year. When real incomes are shrinking, the year before an election, that is good news.

As for the rest: in a press conference a few moments ago, the president said he didn't agree with those who wanted to do the bare minimum to prevent a default, and kick the longer term budget issues down the road.

Instead, he said the debate over the debt limit had given them a "unique opportunity to do something big", for the economy and the American people, and he was calling the Congressional leaders back to the White House this week to get the job done.

Perhaps, but as of now there are still three ways this could go, and anyone who tells you they know which one it will be is deluded.

The first, "grown-up" option (in the administration's view) is a deal that raises the debt ceiling enough to get them through the end of next year, so they don't have to go through another vote this side of the election. That is essentially what the president was talking about tonight when he said he didn't want to "kick the can down the road".

That means raising the limit by at least $2.2tn (£1.4tn), but it would take some heavy lifting from both sides to get there, with more revenue-raising than Republicans would like, and more long-term cuts to Medicare and Medicaid spending than the Democrats will want to take back to their constituents.

There is an easier alternative that is more or less within their grasp, which is extending the debt ceiling by around $900bn, with perhaps $1tn in spending cuts over 10 years, most of which have already been discussed as part of the vice-president's negotiations on Capitol Hill.

The trouble is that this would not be enough to get them through next November. By early summer 2012, they'd be back having the same debate and needing to vote yet again to raise the ceiling.

That leaves a third option, which has been increasingly talked about in the past few weeks since the Senate Republican Leader Mitch McConnell floated it a few weeks ago. It's a very short term stop-gap, raising the ceiling just enough to prevent any default in August and keeping the discussion open into the autumn.

That would be the easiest deal to reach, but to go back to where I began, the president isn't the only one who would prefer to aim higher and get this thing resolved once and for all.

Yes, it hurts the president when the deficit is centre-stage, but when Republicans go back to their districts they find it's playing badly for them as well. The voters don't like "Obama's deficit spending", but nor do they like watching politicians constantly at each other's throats.

The great sticking point is the same as it has been all along: a serious deal requires some new revenue as well as a lot of spending cuts, and right now the Speaker of the House, John Boehner, can't deliver the votes for any revenue increases at all.

Unless and until someone finds some wiggle room in that promise, Congress is going to be kicking this one down the road for a while longer.