Speaker of the House John
Boehner (center) leaves the second House Republican Caucus meeting of the day
with House Ways and Means Committee Chairman Dave Camp during a rare New Year's
Day session on Tuesday in Washington. The House approved a Senate 'fiscal cliff'
bill to avoid massive tax hikes and spending cuts. Chip Somodevilla / AFP via
Getty Images
Despite Congress' late-breaking New Year's Day deal to avert - for now - tax
hikes and budget cuts that could have pushed the US economy into a deeper
recession, many find the political brinksmanship surrounding fiscal-policy
debates in Washington unnerving. While enough Republicans in the House of
Representatives joined the Democratic minority to endorse a budget plan endorsed
by President Barack Obama and approved earlier by the Senate, the package failed
to resolve several issues. A new Congress, to be sworn into office on Thursday,
will be left to address them in the coming weeks.
Coverage of the congressional tussle was heavy both in the US and
internationally, since policy moves by the world's biggest economic power affect
the world. China's Xinhua News Agency said in a commentary that while Washington
policy makers had come together to pass the budget plan, a lot of work remains.
"With a total public debt of nearly $16.4 trillion, the US has bigger fiscal
challenges ahead," Xinhua said. "The most worrying thing about US politicians is
that if they have come so close to falling off a 'cliff', they are far less
likely to reach a deal to help their country climb out of an abyss," the
commentary read.
It also noted that Congress and the president had "kicked the can" yet again -
delaying until March their deadline for resolving fundamental issues such as the
US federal budget, predetermined spending cuts and the debt ceiling, which
affects the government's borrowing ability. Had the House not voted for the
compromise after a yearlong deadlock, $600 billion in tax increases and spending
cuts would have gone into effect. But the deal struck late on Tuesday didn't
raise the debt ceiling, address US unemployment or lay plans for shrinking the
US budget deficit, leaving many observers to see it as short-lived. Many agreed
with Xinhua's assessment that the big problems are yet to be resolved.
"Concern regarding the Band-Aid solution to the fiscal cliff is warranted," said
Lawrence Goodman, president of the Center for Financial Stability - a think tank
in New York.
"The fast fixes will do little to actually reduce US debt or other open-ended
liabilities such as Medicare, Medicaid and Social Security," he said. According
to the International Monetary Fund, "more remains to be done to put US public
finances back on a sustainable path without harming the still-fragile recovery".
"It is crucial to raise the debt ceiling expeditiously and remove remaining
uncertainties about the spending sequester and expiring appropriation bills,"
IMF spokesman Gerry Rice said in Washington.
Asian stock markets surged on Wednesday on news of the US compromise deal, which
raises income taxes on households making $450,000 a year or more but spares
lower-income Americans. Top tax rates on capital gains and investment dividends
will increase to nearly 24 percent from 15 percent. China, as the world's No 2
economy, has reason to be concerned about US fiscal policies. The two countries'
economic interdependence is closer than ever, while bilateral trade and
investment are crucial to each other's growth and the health of the global
economy.
Goodman said international investors such as China will need to keep close watch
on markets and economic data. "Market movements will reflect receptivity to
investment," he said. "Similarly, growth will prove key for reducing relative
imbalances and repairing balance sheets." Jon Taylor, a political-science
professor at the University of St Thomas in Houston, said the government's
"avoidance" in dealing with underlying fiscal challenges will produce further
political infighting and gridlock.
"It is this sustained gridlock that disillusions the average American regarding
politics and politicians," he said. "Gridlock also gives the world the
impression that the US has become somewhat politically unstable. Long-term, this
could have a direct impact on foreign investment in the US, particularly US
Treasury notes." China, the biggest foreign creditor of the US, increased its
holdings of US Treasurys slightly, to $1.16 trillion, in October despite the
budget crisis in Washington. Experts say international investors have stuck with
US bonds because they are safe compared with other countries' sovereign debt,
especially as parts of Europe remain mired in crisis.
Tuesday's late deal reminded many of the summer of 2011, when Congress took its
debate over whether to raise the debt ceiling - involving money already borrowed
- down to the wire. That August, Obama and the divided Congress - Republicans
control the House while the president's Democrats have a slim majority in the
Senate - agreed to increase America's debt limit by $2 trillion, to $14.3
trillion. The standoff prompted ratings firm Standard & Poor's to downgrade the
debt of the world's biggest economy by a notch from its sterling triple-A
rating.
Some say the modest payroll tax increase included in the latest agreement could
slow the US economy, although the impact will likely be far less severe than if
income taxes had been allowed to rise broadly. "A weak, recessionary US economy
could drag the world down with it, potentially impacting China's economic growth
for the coming year and beyond," said professor Taylor. "A weak US economy could
also reduce US consumer demand for goods, which could hit China's manufacturing
and exporters."
https://usa.chinadaily.com.cn/2013-01/03/content_16077494.htm
US dodges budget disaster
By Zhang Yuwei in New York (China Daily)
2013-01-03
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