Pundits are crying the end of the world, which coincidentally coincides with the predictions of the ancient Mayans.
The end of the world as we know it is not nigh. I actually give the advantage now to the forces in favor of smaller government, as in less spending and lower taxes.
Look at it this way. Any deal has to win approval of a majority in the House. My working assumption is that the Republicans will hold together (but see the * endnote below). Thus, any deal needs approval of almost all Republicans. Think of the Republicans as being lined up on a continuum, from very conservative (lower taxes, lower spending) to more moderate (willing to accept higher taxes, higher spending). Boehner's failure defines the conservative side of the spectrum in regard to the minimum deal it is willing to accept and the risks it is willing to endure. With this clarity, the center of gravity in the Republican continuum has shifted to the conservative side.
Suppose I was negotiating with two people, one very demanding and one less so. The more demanding person just committed himself to blowing his head off if he doesn't get his way. I would say that the center of gravity shifted to the very demanding side of the spectrum.
The conservative Republicans are willing to risk going over the cliff, and I think they are correct in accepting that risk. My belief is that "the cliff" is not anything like truly going over a cliff. There will be some unfortunate consequences, especially in regard to the Alternative Minimum Tax and Medicare rates for doctors (the media are not focusing on the Medicare implications, but the so-called Doc Fix needs to be voted this year or Medicare payments to docs will fall). Taxes will go up, which to be honest I don't see as a disaster either.
*Endnote. It is possible that the Republicans will not hold together in the House. If Obama and Reid craft a deal in the Senate, could that attract all the Democrats in the House and just enough Republicans to pass? Possible, but unlikely...unless the deal is attractive enough on the "less spending and taxes" dimension.