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Bernanke Warns Democrats on Budget Brinksmanship

There's a coming fiscal cliff at the end of the year. The expiration of the Bush tax cuts coupled with the across-the-board spending cuts from last summer's debt ceiling deal and another hit to the debt ceiling mean that on January 1, 2013, the United States will undergo severe measure of austerity if legislators don't act.

Democrats are already accusing Republicans of brinkmanship. Democrat Senate Majority Leader Harry Reid claimed that the Republicans are engaging in obstruction by proposing that a debt ceiling increase be tied to deficit reduction. Fed Chairman Ben Bernanke, however, knows that it's the Democrats who need a warning about political gamesmanship.

Taxes will increase by an estimated $5 trillion over the next decade if Congress does not extend expiring law by Dec. 31. The nation also faces an automatic $1.2 trillion spending cut and the expiration of the payroll tax holiday and benefits for the unemployed.

Bernanke warned Democrats at a lunch meeting that the combined effect would have severely damaging consequences for the recovering economy.

President Obama met with Speaker John Boehner today at the White House that looks to set a preliminary stage for budget negotiations that are likely to continue through to the end of the year - or until a deal is reached.

According to a readout of the meeting from the Speaker’s office, Boehner asked Obama if he was proposing that Congress increase the debt limit without corresponding spending cuts. The president replied, “Yes,” the Boehner aide said. At that point, Boehner told Obama, “As long as I’m around here, I’m not going to allow a debt-ceiling increase without doing something serious about the debt.”

White House spokesman Jay Carney audaciously said, in response to Boehner's concerns about the Obama Administration's lack of a budget reform plan, "he knows exactly where it is," and pointed to Obama's budget plan.

Later, after Carney had claimed that the Obama Administration had a serious debt reduction proposal, the Obama budget was defeated 99-0 in the Senate.

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