Economic crisis looms as Obama returns from Asia

November 20th, 2011 - 1:10 pm ICT by IANS  

Barack Obama Washington, Nov 20 (IANS) As President Barack Obama returns home after a sojourn in Bali he faces a looming economic crisis that threatens to unravel the gains of his “return to Asia” trip to promote ties with the Asia Pacific region.

For the United States to play a long-term leadership role in the region, it needs to get its economic house in order, as Elizabeth C. Economy, senior fellow at the Council on Foreign Relations puts it.

But as lawmakers began a Thanksgiving recess Friday leaving 12 members of a bipartisan super committee behind to devise a plan to cut $1.2 trillion from the nation’s swelling deficit by Wednesday, there appeared to be a little hope of a breakthrough.

An agreement to cut the deficit that touched $15 trillion this week, exceeding the nation’s annual output for the first time since World War II, must come through by Monday night to allow the Congressional Budget Office to audit their work before it goes to the Congress.

But both sides remain entrenched in their positions on tax policy. The Republicans long opposed to raising taxes want to retain Bush era tax cuts at a cost of about $4 trillion to the exchequer over the next decade.

Democrats too want to keep the cuts for the middle class at a cost of 3.2 trillion dollars, but not for the top two percent of the wealthiest Americans. Lawmakers are finding it hard to bridge this $800 billion gap between the two parties.

With little progress in sight, the Republicans put forward an offer of a limited deal to cut the deficit by about $640 billion, half of the targeted figure, to soften the blow of automatic spending cuts in defence and domestic programmes that would kick in by January 2013 after the November 2012 elections.

One reason that lawmakers don’t seem to be too perturbed about prospects of failure is that it would not cause a catastrophe, analysts suggest, as the cuts don’t take effect for another year.

With the Congress getting more and more used to making last minute deals only in the face of an imminent chaos like an impending government shutdown in April and the risk of nation’s first debt default in August, mere deadlines may not work, analysts say.

But threat of another downgrade of America’s debt could well work. In August Standard and Poor’s took the unprecedented step of reducing America’s credit rating from the highest AAA to AA+.

Now all the top three firms - S&P;, Moody’s and Fitch Ratings -have made clear that they could do it again if the Congress fails to act or if the economy worsens significantly.

The question is whether that would be sufficient to help Obama pull a rabbit out of the hat or would the Congress choose to continue playing politics in an election year.

(Arun Kumar can be contacted at arun.kumar@ians.in)

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