US Outlook So, what did we learn from furious debate over the fiscal cliff? Lesson number one has to be that even central bankers, despite their reputations for wonkishness, are vulnerable to the occasional bout of melodrama.
The term fiscal cliff, after all, is widely attributed to that doyen of monetary policy makers, the Federal Reserve chairman, Ben Bernanke. His imagery implied sudden economic catastrophe, as if a minute's delay in a budget deal would send the United States economy hurtling down into some dark economic abyss.
And yet everyone knew – Mr Bernanke knew (more on this later) and the politicians so theatrically prevaricating in DC knew – that 1 January wasn't so much the deadline for doom, but rather a milestone. Had a deal not been struck, the economy would have begun going down a troubling road that, in time, would have spelt slowdown and eventually recession.
Lesson number two is that sometimes a deal is not a deal, no matter how spectacular the "relief rally" on the markets.
The Biden-McConnell pact, besides green-lighting a tax rise for some 160 million Americans by allowing the expiry of the payroll tax holiday, which kept payroll levies down by 2 per cent, has left perhaps the most important issue unanswered. The government's room for manoeuvre on the debt ceiling, that uniquely American construction which puts a cap on the money the federal executive can raise by issuing debt to pay for programmes authorised by Congress, will run out as February comes to a close.
A failure to raise the limit would mean that the government runs out of day-to-day cash. And such paralysis would constitute a sudden blow. Not that it'll happen, of course. We have been here before, when, in 2011, the politicians waited until the last minute to do what they knew they eventually had to do.
And yes, they did provoke a downgrade of the US credit rating. But, despite the warnings from the likes of an erstwhile private-equity executive called Mitt Romney, who called the rating cut a "meltdown", and a bright, young Congressman called Paul Ryan, who in his mind's eye saw a debilitating tide of rising mortgage rates, the US survived the downgrade just fine (and mortgage rates fell). Whether the ratings agencies like it or not, US Treasuries have a deep market, deep enough to survive the scribbles of some agency analyst spooked by DC politics.
A deal, then, remains likely, as does the requisite brinkmanship in the run-up to its eventual announcement. Which brings us to the question of why Mr Bernanke, who is more expert in these matters than any newspaper writer, played up the hype.
Perhaps because he understands that while a little hype might irk one or two of his colleagues in the academy, it doesn't hurt in this most polarised of political arenas to put some public pressure on Congress, to push the senators and representatives to momentarily take off their ideological blinkers and accept economic reality. And so, maybe it's time for another coinage. Debt storm? Debt canyon? Over to you, Mr Bernanke.