Obama signs order for painful budget cuts

(By Deutsche Welle) US President Barack Obama has signed an order that starts putting into effect across-the-board budget cuts known as the “sequester” after he and congressional leaders failed to find an alternative budget plan.

Huge spending cuts will start to hit the US starting Saturday after President Barack Obama and congressional Republicans failed to find a compromise budget. Obama signed an order authorizing the cuts Friday night, officially enacting the across-the-board reductions.

With the series of automatic spending cuts, Democrats and Republicans are playing a game of political chicken, with neither party willing to compromise in the latest round of America’s 18-month-old fiscal drama. A last-ditch round of talks between President Barack Obama and congressional leaders ended without a breakthrough. After the talks Obama described the cuts that now have gone into effect as “dumb” and “arbitrary” and warned of the negative impact on the economy and jobs.

The $85 billion (65 billion euros) in across-the-board cuts for fiscal year 2013, called sequestration, will equally impact both defense and social spending. Another $1.2 trillion of austerity will then set in over the next decade. Designed originally as a strategy to intimidate hyper-partisan members of Congress into a compromise on taxes and spending, sequestration was never actually supposed to become reality.

But now, both sides of the political aisle are pointing fingers as Washington prepares to fall on its own sword.

“Unfortunately, it appears that Republicans in Congress have decided that instead of compromising  – instead of taking anything from the wealthiest Americans – they would rather let these cuts fall squarely on the middle class,” US President Barack Obama said in his weekly radio address on Saturday.

Having already agreed in January to postpone the sequester by two months and raise taxes on families earning more than $450,000, many Republicans are unprepared to meet the president’s demands on revenue this time around.

“Most Americans are just hearing about this Washington creation for the first time: the sequester,” John Boehner, speaker of the House of Representatives, wrote in a Wall Street Journal editorial on February 20. “What they may not realize from Mr. Obama’s statements is that it is a product of the president’s own failed leadership.”

According to Ron Haskins, an expert on budget issues at the Brookings Institution in Washington D.C., the parties are unwilling to forge a bi-partisan agreement on austerity because they would be held politically accountable by their constituencies for the economic pain. So they are increasingly prepared to let the sequester go into effect and try to push the blame on their adversaries.

“I don’t think they have really made a rational calculation,” Haskins told DW. “I think that probably the main element in their thinking is that they can blame the other team – that’s what they’re hoping.”

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Partisan politics holds US economy captive

Just as European nations have begun to implement a series of crisis-fighting mechanisms to save their common currency, the United States now faces a so-called fiscal cliff at the end of the year, a series of austerity measures that could throw the world’s largest economy into a double-dip recession.

In October, the International Monetary Fund (IMF) warned during its meeting in Tokyo that the slow pace of reform in Europe and the United States was causing global economic uncertainty. And increasingly, emerging economies such as China are no longer able to pick up the slack, as they also witness slower growth.

“Whether you turn to Europe, to the United States of America, to other places as well, there is a level of uncertainty which is hampering decision makers from investing and from creating jobs,” IMF chief Christine Lagarde said in Tokyo. “We need action to lift the veil of uncertainty.”

In Europe, the European Central Bank (ECB) has agreed to an unlimited bond-purchase program aimed at pushing down interest rates in crisis-stricken states, while the 17-member eurozone has set up its permanent bailout fund. But across the Atlantic in Washington, a deeply divided Congress is still struggling to resolve America’s ballooning budget deficit.

Currently, the world’s largest economy faces a series of massive taxes increases and cuts in spending to the tune of $607 billion (470 billion euros), or four percent of the country’s gross domestic product (GDP). Both Lagarde and the Congressional Budget Office (CBO) have predicted that in lieu of some sort of political compromise that cushions the worst of the austerity, America will dip back into recession.

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