Can America escape its $1.3 trillion black hole?

An impasse in Congress over spending cuts could send the US spinning into recession


The United States found itself last night on an express train to historic cuts in domestic and military spending that could quickly shrink its global standing and threaten a fresh recession in the wake of the unceremonious collapse late on Monday of bipartisan deficit-cutting talks.

Click here to view the graphic 'In the red: How the deficit crisis could unfold'

Numbness mixed with panic settled over Washington following the admission of defeat by the bipartisan super-committee formed in August to find ways to cut federal spending by $1.3 trillion over 10 years. The legacy of its failure promises to be complicated. All sides darted in different directions to start the blame game. In New Hampshire, President Barack Obama appealed to Congress at least to extend middle-class tax breaks that are set to expire, while runners for the Republican presidential nomination excoriated him for a failure of leadership in another debate.

If there is panic it is partly because the terms under which the committee was created stipulated that, in the event of its failure, a swathe of cuts would automatically come in to effect to achieve the same reduction in spending. They are due to begin biting in January 2013 and hold terror mostly for Republicans because they would include a $500bn dive in funding for the Pentagon.

Mr Obama is already warning Congress against making any attempt to challenge the automatic nature of those cuts even if his own Defence Secretary, Leon Panetta, is on the record warning that they would spell catastrophe for the US military. If carried out, he says, the US would have "the smallest ground force since 1940, the smallest number of ships since 1915 and the smallest Air Force in its history".

Democrats have reason to quake also, however, because half of the automatic cuts will affect programmes close to their hearts like education and healthcare. Common sense would suggest that the prospect of these cuts will drive Congress to try again to negotiate a package of spending reductions before they come into effect. But that may be pie-in-the-sky as the US enters an election year.

The super-committee's failure will now compound the sense across the country that Congress is incapable of accomplishing anything, a perception that is bad for everyone on Capitol Hill but probably also for Mr Obama as well. The mood has been further darkened by a downwards revision of US economic growth in the last quarter from 2.5 per cent to 2 per cent.

"It's the chief executive's job to bring people together and to provide leadership. I don't see that happening," Michael Bloomberg, the Mayor of New York, told reporters, adding that the failed talks were another "damning indictment of Washington's ability to govern this country".

If Mr Obama indeed seemed to be absent as the super-committee writhed in recent weeks it was by design. His aides did not want him to be associated with a venture that looked set to fail. Yet it was a strategy that risked making him look gutless.

"Americans expect their President to be a leader, not a calculating politician taking a back seat so he can get re-elected," said Kirsten Kukowski of the Republican National Committee. "The longer Obama punts on important issues, the more Americans will start questioning whether he's the same President they were sold in 2008."

The sharp fall in stock prices on Monday and further losses yesterday were seen by many as a sign that investors were again also losing faith in the ability of the US to control its own fate. So far at least the main rating agencies seem disinclined to downgrade America's debt status. That would surely change, however, if Congress found a way to undo the automatic cuts and replace them with nothing much.

While the automatic cuts indeed promise to do what the super-committee could not do in terms of slaying the budget deficit – the gap between spending and revenue might be cut by half especially if tax cuts for the rich are allowed to expire at the end of 2012 – there are fears that the drop-off in federal spending would be too sudden and would tip the country back into recession.

The battle next year over the tax cuts for the rich alone is likely to be seismic. At the core of the current dysfunction in Washington is the unwillingness of Republicans to contemplate anything but the tiniest increases in taxation. Democrats who are committed to protecting social-protection programmes say some revenue-raising measures are vital.

"We start [from] fundamentally different premises," Senator Pat Toomey, a Republican and former member of the defunct committee, said of the other party yesterday. "They are advocates for big government. If we are gong to have a European-style large government then you need bigger taxes to fund that."

The more immediate problem for Mr Obama however is the scheduled expiry at the end of next month of breaks in what middle-income earners pay in Social Security tax.

A failure to renew them could cost the average American family $1,000 next year, he said in New Hampshire.

Suggested Topics
Emma Watson has become the latest target of the 4Chan nude hacking scandal
peopleThreats follows actress' speech on feminism and equality at the UN
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
David Moyes and Louis van Gaal
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs General

Business Analyst/ Project Manager - Financial Services

£60000 Per Annum: Clearwater People Solutions Ltd: Our client in the Financial...

Year 3 Teacher - Winsford

Negotiable: Randstad Education Chester: Year 3 Teachers needed in Winsford We ...

Behaviour support worker

Negotiable: Randstad Education Manchester: Behavioural support worker Pupil r...

Year 5/6 Teacher - Winsford

Negotiable: Randstad Education Chester: Year 5/6 Teachers needed in WinsfordWe...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits