A split among economists over whether a debt ceiling vote should be tied to spending cuts highlights the risk of overconfidence, despite a consensus opinion in the latest Journal survey that the ceiling will be raised before an August deadline.
“The problem with games of chicken is that occasionally they result in collisions,” said David Wyss, chief economist of Standard & Poor’s Corp., referring to the political tussle over increasing the amount the U.S. can borrow. If a deal isn’t reached “the bond market is going to react badly, the question is how badly.” He also noted the efforts to avoid a technical default by cutting government payments elsewhere could have negative implications for the economy.
By a 9-1 margin the economists expect a deal will be reached to raise the debt ceiling by August. However, of the 46 economists who answered the question (nine survey participants chose not to respond to the query), 23 said the the vote should be tied to spending cuts, while the other 23 thought linking the two is a mistake.Continue reading on blogs.wsj.com