Fiscal cliff crisis forces Obama to abandon Hawaii trip

 

New York

With only days to go before the US goes over the “fiscal cliff”, President Obama cut short his Christmas break in Hawaii to arrive back in Washington DC in a last-ditch attempt to hammer out an alternative to the more than $600bn in looming spending cuts and tax rises.

Lawmakers, meanwhile, were put on notice about a related challenge after the Treasury Secretary, Tim Geithner, sounded a warning about the country's debt limit. US government borrowing is set to hit the debt ceiling on Monday, he said in a letter to Congress today, adding that the Treasury will soon begin implementing "extraordinary measures" that will give the US around two months before it runs the risk of a calamitous default.

However, that time-frame is subject to uncertainty, Mr Geithner said, given the impasse in the fiscal cliff negotiations, as the White House and Congressional Republicans struggled to reach a deal.

If an agreement cannot be reached, more than $600bn in spending cuts and tax hikes will automatically come into force in early January and, it is predicted, tip the US back into recession.

But even as Mr Obama and members of both the House and the Senate hurried back to Washington, it emerged that ordinary Americans had become more pessimistic about the prospects of a solution that would spare another blow to their already battered wallets. Only 50 per cent think it likely that a deal will be reached, against 48 per cent who believe it is unlikely, according to a new Gallup poll.

That contrasts with a poll earlier in the month in which 57 per cent were confident about the prospect of a compromise between President Obama and the man leading the negotiations on behalf of the Republicans, House Speaker John Boehner. Talks between the two broke down last week amid continued disagreement over taxing the wealthiest Americans.

With no comprehensive agreement covering both the various Bush-era tax breaks that are due to expire at the end of the year and the upcoming cuts to government spending likely to be struck in the time remaining, the President mooted a narrower pact to protect the majority of Americans before he left for his Hawaiian break on Friday.

The President's scaled-down plan would freeze tax rates for households earning less than $250,000 a year (£155,000) while extending jobless benefits for more than two million Americans. "That's an achievable goal," Mr Obama said last week.

Any pact, however, is expected to face challenges in Congress, after Mr Boehner, facing defections on his own flank, failed to push through a House measure backing tax hikes only on those earning $1m a year or higher.

The medium-term consequences of going over the fiscal cliff – a term coined by Federal Reserve chairman Ben Bernanke – could be dire for what remains a weak economy. A long period of disagreement between the two parties could, according to estimates published by the independent Congressional Budget Office, cause the US economy to contract by 0.5 per cent in the first half of 2013 as it heads into recession.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Adviser - OTE £24,500

£22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...

Recruitment Genius: Business Development Executive / Sales - OTE £40,000

£18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...

Guru Careers: Research Associate / Asset Management Research Analyst

£40 - 45k (DOE) + Benefits: Guru Careers: A Research Associate / Research Anal...

The Green Recruitment Company: Graduate Energy Analyst

£20000 Per Annum: The Green Recruitment Company: Summary: The Green Recruitm...

Day In a Page

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkish President Erdogan could benefit politically from the targeting of the PKK, says Patrick Cockburn
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn or a return to a Labour government

Our choice is years of Tory rule under Corbyn or a return to a Labour government

Yvette Cooper urged Labour members to 'get serious' about the next general election rather than become 'a protest movement'
Singapore's domestic workers routinely exploited and often abused in the service of rich nationals

Singapore's hidden secret of domestic worker abuse

David Cameron was shown the country's shiniest veneer on his tour. What he didn't see was the army of foreign women who are routinely exploited and often abused in the service of rich nationals
Showdown by Shirley Jackson: A previously unpublished short story from the queen of American Gothic

Showdown, by Shirley Jackson

A previously unpublished short story from the queen of American Gothic
10 best DSLRs

Be sharp! 10 best DSLRs

Up your photography game with a versatile, powerful machine
Solved after 200 years: the mysterious deaths of 3,000 soldiers from Napoleon's army

Solved after 200 years

The mysterious deaths of 3,000 soldiers from Napoleon's army
Every regional power has betrayed the Kurds so Turkish bombing is no surprise

Robert Fisk on the Turkey conflict

Every regional power has betrayed the Kurds so Turkish bombing is no surprise
Investigation into wreck of unidentified submarine found off the coast of Sweden

Sunken sub

Investigation underway into wreck of an unidentified submarine found off the coast of Sweden
Instagram and Facebook have 'totally changed' the way people buy clothes

Age of the selfie

Instagram and Facebook have 'totally changed' the way people buy clothes
Not so square: How BBC's Bloomsbury saga is sexing up the period drama

Not so square

How Virginia Woolf saga is sexing up the BBC period drama
Rio Olympics 2016: The seven teenagers still carrying a torch for our Games hopes

Still carrying the torch

The seven teenagers given our Olympic hopes
The West likes to think that 'civilisation' will defeat Isis, but history suggests otherwise

The West likes to think that 'civilisation' will defeat Isis...

...but history suggests otherwise
The bald truth: How one author's thinning hair made him a Wayne Rooney sympathiser

The bald truth

How thinning hair made me a Wayne Rooney sympathiser
Froome wins second Tour de France after triumphant ride into Paris with Team Sky

Tour de France 2015

Froome rides into Paris to win historic second Tour
Fifteen years ago, Concorde crashed, and a dream died. Today, the desire to travel faster than the speed of sound is growing once again

A new beginning for supersonic flight?

Concorde's successors are in the works 15 years on from the Paris crash