Next fight and crisis will be about raising debt ceiling

With the fiscal cliff avoided, Obama now faces other challenges soon, including the need to raise the $16.4 trillion borrowing limit. He also has to deal with the more than $100 billion in automatic spending cuts that were delayed for just two months.

The spending cuts will probably be replaced by more targeted cuts that could be over a longer period as well. Speaking form Hawaii where he is on a family vacation, Obama said he is willing to consider more spending cuts and tax increases to help reduce the deficit.

On the debt ceiling, Obama claimed he would not compromise on the issue. Last time, the Congress had a standoff over the issue and the US credit rating was downgraded. Republicans want to use the issue as leverage to force the Democrats to make more spending cuts. Obama warned about any attempt to block an increase:

"If Congress refuses to give the United States the ability to pay its bills on time, the consequences for the entire global economy could be catastrophic. Our families and our businesses cannot afford that dangerous game again."

Immediately after the House finally passed the fiscal cliff deal, Obama said

: "I will not have another debate with this Congress over whether or not they should pay the bills that they've already racked up through the laws that they passed."

Actually the US has already reached the spending limit of $16.394 trillion. Since it cannot borrow money in the markets, "extraordinary measures" are being used to pay bills on time. This can go on only for a couple of months. The issue must be solved soon. Both Obama and Senate minority leader McConnell both agree that the debate on the issue should be resolved early and not at the last minute. To cover just a year of borrowing, the debt limit will need to be increased by almost a trillion dollars.

The Government Accountability Office estimates that the increased costs of borrowing during the standoff was about $19 billion in interest during the next decade. If the Congress did not approve an increase some analysts think that Obama could simply invoke the 14th Amendment to the US Constitution that says:

"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

According to this view, Obama could then simply order the Treasury Secretary to keep borrowing to pay bills. The White House has claimed that it would not use this strategy. It is regarded as risky politically. Joseph Minarik, a former chief economist at the White House Budget Office said

:"It is hard to imagine any Treasury secretary, or any president, allowing himself -- or herself -- to be the first to default on the public debt. That having been said, no one knows what other options lurk in the file cabinets of the attorneys in the Treasury. They aren't talking."..

While Obama may not want to have a long debate that would involve trading off spending cuts for a hike in the spending limit, he may not have any choice. Mitch McConnell put the matter bluntly:"The president may not want to have a fight about government spending over the next few months, but it's the fight he is going to have, because it's a debate the country needs." In a Yahoo op-ed McConnell said that Obama must deliver a serious plan to cut government spending. Unless the Republicans see some significant movement on that front there will probably be no agreement about raising the debt ceiling let alone the delayed multi-billion dollar spending cuts.