America's big bucks battles only starting

Three potential deficit showdowns could send the US into default

The "fiscal cliff" battle may be over, but Washington's fiscal wars have only just begun: a series of budget battles between Barack Obama and the Republican-controlled House of Representatives could shut down the government and, at worst, send the US into default, sowing chaos in global financial markets.

On Capitol Hill, the January after a presidential election is a time of ceremonial occasions: the formal certification of the previous November's vote, the installation of a new Congress, the election of a Speaker, and the inauguration – in this case the second inauguration – of a president. And so it is this year. But minds are already on the three potential deficit showdowns looming in the first three months of 2013.

Before the start of March, Congress and the White House are supposed to agree on the "sequester", the mandated $100bn (£60bn) of cuts in government spending that were merely delayed for two months as part of last Monday night's last-ditch deal that prevented massive automatic tax increases for most Americans. And on 27 March, the stop-gap funding arrangement that, in lieu of a proper budget, allows the government to function, is due to expire. That deadline could shut down the government, failing agreement between Republicans who insist on cutting the federal deficit by reducing spending, and Democrats determined to defend Social Security and Medicare, the hugely costly federal entitlement programmes.

Most dangerous of all, however, is the issue of the federal debt ceiling. The current limit of $16.4trn was reached on 31 December, but Treasury accounting devices allow the government to keep borrowing for a few weeks more. But by mid or late-February the wriggle room runs out and the House must authorise an increase.

If both sides persist in their stated positions, we can be certain of a repeat – or worse – of the summer 2011 debt ceiling crisis, which led to a US downgrade on international markets and badly dented the country's credibility. In the process, the economic recovery that is starting to gather steam could be halted in its tracks.

Every ingredient for renewed brinkmanship is in place: a Democratic president refusing to negotiate, a weakened Republican Speaker determined to re-assert his authority, and a Republican party smarting from its failure to secure any spending cuts of significance in the fiscal-cliff deal. Having talked tough and then caved in on the July 2011 debt ceiling discussions, Mr Obama has promised that this time he will not even discuss the matter.

On Thursday, the Speaker, John Boehner, humiliatingly sidelined in the fiscal-cliff talks after he lost control of his unruly House membership, was re-elected to his post for the 113th Congress by just six votes, after a dozen arch-conservative Tea Partiers defected. Less than 24 hours later, Mr Boehner promised House Republicans he would use the debt ceiling to force Mr Obama to cut spending.

Emboldening Republicans is the sense that they now hold the initiative. The issue on which they were most vulnerable – tax increases for the wealthy – was settled in the fiscal-cliff deal. They now believe that public opinion favours their hardline stance on spending cuts to reduce a budget deficit running at $1trn-plus annually. But the White House is already hitting back, portraying Republicans as ready to risk America's – and the world's – financial stability, just to secure crippling cuts in the highly popular Medicare and Social Security.

The best way of avoiding disaster would be the so-called "Grand Bargain", a long-term deal involving a mix of spending cuts, curbs on entitlement and further tax increases, to which Mr Obama and Mr Boehner came close at one point last year. Since then, however, personal relations between the President and top Republicans have only worsened. Measured both by the acrimony it produced and by its failure to pass worthwhile legislation, the 112th Congress, which ran from January 2011 to January 2013, was one of the worst in US history. The 113th, could, many fear, be more dismal still.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs General

Ashdown Group: Marketing Manager (B2B) - Romford - £40,000 + car

£35000 - £40000 per annum + car and benefits: Ashdown Group: Marketing Manager...

Ashdown Group: Helpdesk Analyst - Devon - £20,000

£18000 - £20000 per annum: Ashdown Group: Helpdesk Analyst - Devon - £20,000 ...

Ashdown Group: Data Scientist - London - £50,000 + bonus

£35000 - £50000 per annum + generous bonus: Ashdown Group: Business Analytics ...

Ashdown Group: IT Project Coordinator (Software Development) - Kingston

£45000 - £50000 per annum: Ashdown Group: IT Project Coordinator (Software Dev...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected