Editorial: Washington deficit follies, Act Two

Welcome to the idiotic new world of the US government budget "sequester". Under this latest self-inflicted wound to fiscal governance – for which both Republicans and Barack Obama share responsibility – $85bn (£56bn) of government spending cuts are starting to kick in, with consequences that are impossible to predict, but certain to be harmful.

The sequester was devised under the agreement that resolved the equally absurd debt ceiling crisis of summer 2011. It was adopted precisely in the belief that it would be so disruptive and painful that the two sides would see sense and reach a long-term deficit-reduction agreement. Alas, the susceptibility of America's eternally warring politicians to reason can never be underestimated.

Markets, now inured to the dysfunctionality of the US political system, have thus far reacted with a yawn: indeed, the Dow has flirted with its all-time high. But it would be foolish to bank on that complacency lasting; in reality, the sequester is a slow-motion train crash.

The immediate impact may be modest – except of course for the thousands of government workers who will be suspended or placed on short time. But the impasse creates more uncertainty for the economy, while the mandatory cuts in Pentagon spending could harm US national security. And worse could follow. Act Two of the 2013 Washington deficit follies has now opened, its climax a possible federal government shutdown on 27 March, when the current stop-gap funding bill expires. And then, dare one mention it, on 19 May the debt ceiling comes up once more for renewal.

Each one of these manufactured dramas stems from the failure of the two parties to agree the obvious: a long-term package mixing spending cuts, tax increases and curbs on entitlement programmes. But for now both sides are sitting on their hands. The President is confident that the Republicans will lose the blame game, when the sequester's impact starts to be felt. It is to be hoped that he is proved right.