Back in 2011, during the last debt ceiling debate, the U.S. went into what could reasonably be described as potential default territory. We are nowhere near as close to that as we were then, but we are starting the downward slide, with Treasury Secretary Tim Geithner quoted over the weekend as saying that we will hit the federal borrowing limit on Monday (i.e., New Year’s Eve), which is to say in a couple days.

At that point, the Treasury will start to take certain “emergency” measures—I put that in quotation marks because we were here in 2012, and the only emergency is Congress’s unwillingness to act—which will allow the government to pay its bills for a limited time, probably a couple months, and avoid a full-blown debt crisis for that period. Timing is uncertain because it depends largely on the tax and spending agreements reached with respect to the fiscal cliff. How much money is raised and spent will be critical in determining how long the Treasury can juggle bill payments. We won’t know that until—and if—Congress acts on the fiscal cliff.

I have renewed confidence about the ability of the Germans to solve any and all problems associated with the euro, after spending several hours yesterday building a play castle for my son.

I have always loved Christmas. But as I grew older, as much as I loved it, I think I lost much of the spirit. Now that I have a four-year-old son—who is wrestling with the stress of being good under the eye of the “Elf on the Shelf,” eying presents under the tree, and baking cookies with his mom—I find myself recovering much of what I had lost. This is wonderful, but, as a father, I also find myself reaching deeper into the meaning of the holiday.

The idea of sacrifice is at the heart of both Judaism and Christianity, and the notion of a father sacrificing his son is fundamental. Christmas itself, where the Christ child is born into the world, is the start of just that sacrifice. I literally cannot fathom making that kind of sacrifice—of giving up my son. At the same time, I understand just how much I would sacrifice for him.

I just finished a book on nuclear strategy in the post-Cold War era and have been planning to review it. I will still do so, probably next week, but find myself somewhat overtaken by events, as many of the points the book makes, and that I wanted to highlight, are critical to the just-announced sale of the New York Stock Exchange. Bear with me as I walk through some of them.

“If Boehner can’t bring his plan B to a vote and win, he probably won’t be able to successfully sell any more comprehensive deal—and we go off the cliff.”

The quote above is from yesterday’s post. As you may have noticed, the world didn’t end last night, although it has changed significantly per that quote. Speaker Boehner could not bring his plan B to a vote—he pulled it once it was clear he didn’t have the votes—much less pass it, and now the complexion of the negotiations has changed again.

All of the preceding analysis is based on the assumption that the fiscal cliff is averted and that a deal, which phases in any tax increases and spending cuts over time, rather than imposing them all on January 1, is cut.

Seeing as the world will be ending tonight, that seems to be the only appropriate headline. I’ve stocked up on champagne this week; if I have to go, I want to go with a nice demi-sec—Veuve Clicquot, to be exact—and my family around me. There’s another couple of bottles in the refrigerator, just in case we have to wait a bit.

On the other hand, if I don’t have to go, I had better get going on the commentary. In this case, I think the markets are, in fact, a good predictor of the future, as they don’t seem to indicate a significant chance of the world ending. Although they were down a bit yesterday, I would expect a bit more of a sell-off, really, if the world were ending.

Fixed income

Over the past couple of weeks, I have been looking at the day-to-day evolution of the fiscal cliff negotiations and spending quite a bit of time talking about trees. When I did the 2013 outlook series, I did a lot of forest gazing, trying to figure out the bigger picture for the economy and the markets. Now is probably a good time to combine the two and look at the bigger picture of the fiscal cliff and what it means for the U.S. government and economy.

In a previous guest post, Peter Essele pointed out that, on an income basis, housing appears very affordable and that the aggregate price index has tracked quite closely with the sold/for sale ratio. The correlation between the two is quite high, at 0.93, suggesting that they are causally linked, which is certainly reasonable from a fundamental supply/demand standpoint. Peter went on to conclude that these metrics support the continued strong performance of the housing market, although, as more supply has come on the market, the ratio has become less favorable.