Peter Orszag has an op-ed at the Financial Times predicting "turbulence" during "the hard slog of recovering from the financial crisis." Wondering "whether a home-grown fiscal crisis could derail this year's rebound," Orszag posits that the "severity of fiscal risk varies considerably depending on which level of government is under discussion."
The bottom line is that there may well be US public debt tremors this year, both during federal debate over raising the debt ceiling and with at least a limited number of crises in local and city governments. The bigger problem, though, lies beyond 2011, as the unsustainability of the federal government's fiscal trajectory becomes increasingly clear. I hope it does not ultimately require a crisis to restore fiscal sustainability at the federal level, but I fear it will.
Riding the wave of public opinion expressed in November, Republicans presently have the momentum on economic issues. Voters are waiting to see GOP initiative on spending cuts and debt reduction (as well as job creation and health care repeal and reform). Voters have rejected the know-nothing era of economic recklessness - it's time for adult solutions to real problems. This GOP let a similar opportunity escape them in the years leading up to 2008. This is again the GOP's moment - and voters are watching.