As the equanimity in financial markets is signalling, some deal to avoid a US sovereign debt default will probably be cobbled together; the consequences for America and for the world of failing are just too great. But even if the talks succeed, the outcome will do far less to address America’s fiscal problem than was hoped when the formal discussions were launched under vice-president Joe Biden’s leadership in April.
It’s clear that the numbers simply don’t work without some tax increases, which Republicans are firmly opposed on. Similarly, while Democrats have shown modestly more flexibility toward cuts in Medicare, their accommodation stops well short of the surgery that is needed in both health care entitlements and Social Security.
After several months of political wrangling, America’s fiscal challenges remain just as daunting as they were at the beginning. The coming presidential election augurs poorly for major reform before 2013.