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?
News
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: New Business Development Manager / Sales - UK New Business

£24000 - £36000 per annum: Recruitment Genius: Join a fast growing, UK based I...

MBDA UK Ltd: Mission Planning and Control Solutions Systems Engineer

Competitive salary & benefits: MBDA UK Ltd: What’s the opportunity? A pro-act...

MBDA UK Ltd: System Design Capability

Competitive salary & benefits: MBDA UK Ltd: What’s the opportunity? The small...

Recruitment Genius: Time Served Fabricator / Welders - Immediate Start

£25000 - £35000 per annum: Recruitment Genius: Fabricator welder required for ...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific