1) This is an artificial crisis.
2) The damage, IMHO, has already been done. The main problem here is the feeling of uncertainty and risk associated with the US. Now that we are only a few days away from the deadline, investors are starting to waver. They thought this was going to be a game of chicken where one eventually swerves, but they're seeing that our politicians (the republicans) might not be so rational.
3) It's insane to think that the debt and deficit problem have to be solved immediately. Republicans are proposing a balanced budget amendment (I wonder if that means that the US won't be allowed to run surpluses then), which would mean that the government has to match the loss in revenue from a recession, with spending cuts/tax increases. It'll also mean we have to make, immediate spending cuts, in order to balance the budget NOW. This would hurt our economy, and actually make the debt problems worse, by lowering our GDP (GDP to debt ratio). In fact, with the balanced budget amendment, we'll be seeing an retarded downward cycle of cut, downturn, cut, downturn, cut, downturn, etc.
Some people want to start reducing our debt right now, which would require us to run a surplus. Clearly impossible to do so right now =.=
4) Let's remember how we got here.
We reduced tax revenue by lowering taxes to ridculously low levels in 2000. Socialists like Paul Krugman criticized the Bush tax cuts, since it was going to be reducing revenue and create a large deficit.
The big trigger though, is the recession. With the recession, we had a huge hit to our GDP, and subsequently to our tax revenue. We also had a huge increase in unemployment benefits. This is normal, these are called automatic stabalizers. On top of that, we had the stimulus and bailouts. While both weren't executed perfectly at all IMHO, they were certainly better than nothing.
The main thing we need to do right now, is to help our economy recover. Once we get unemployment and GDP growth to its long term rate, and the EU also settles its problem, then we're in a position to actually start doing contractionary policies.
The main things we need to solve is our health care costs, and our tax revenue. Once we get those 2 done, we're in pretty okay shape.
