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Panel fails in mission to slash US debt, market plunges on interest rate fears

Posted by on 16/08/2018

WASHINGTON – The bitter partisanship gripping Washington has blocked a deal among members of a special congressional panel that struggled and eventually failed in its assignment to cut more than a trillion dollars from America’s crippling and expanding debt.

As the committee announced Monday that it was going out of business, the U.S. stock market had already taken a sharp decline in anticipation of the so-called supercommittee’s inability to put together legislation that would slash U.S. deficit spending by at least $1.2 trillion. The country’s overall national debt has risen above $15 trillion.

Democratic Sen. Patty Murray and Republican Rep. Jeb Hensarling said that despite “intense deliberations” the members of the panel were unable “to bridge the committee’s significant differences.”

The stalemate could last through next year’s presidential and congressional elections. That could lead to Republicans ousting President Barack Obama and winning control of both chambers of Congress. Or, Democrats could score victories that would force Republicans to yield some ground.

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Simply put, Republicans refused to cross their ideological line against increasing taxes. Democrats refused to allow cuts in popular programs that serve the elderly and poor without a compensating growth of government income, especially from the wealthiest Americans.

The real deadline is Wednesday but a solid draft was due Monday night to allow the nonpartisan Congressional Budget Office time to assess project savings had a deal been reached. There had been hope of polished legislation that could go to both houses of Congress for an up or down vote that precluded any amendments or filibusters to alter or delay action. That was to have happened before the end of the year.

The deal between Obama and Congress that set up the Supercommittee included provisions that dictate, in case of failure, $1 trillion in automatic cuts in spending for defence and a range of other government agencies starting in 2013.

Obama said in a news conference after the supercommittee’s announcement that he would veto any attempt to undo the automatic cuts. He blamed Republicans directly for the failure of the supercommittee, attributing it their unwillingness to compromise on taxes.

“There are still too many Republicans in Congress who have refused to listen to the voices of reason and compromise that are coming from outside of Washington,” he said. “They continue to insist on protecting $100 billion worth of tax cuts for the wealthiest 2 per cent of Americans at any cost.”

In reality, it is unclear if any of the automatic reductions will ever take effect, since next year’s elections have the potential to alter the political landscape before then.

Americans already hold Congress in record low esteem, 9 per cent approval, and the supercommittee failure was certain to send that number even lower. But it also could hurt Obama, who has increased the total U.S. debt considerably – to more that $15 trillion – with emergency spending he said was necessary to keep the American economy out of a depression. He pumped billions into the economy after it nearly collapsed in the final months of George W. Bush presidency.

The stock market fell sharply as investors sought safety in U.S. Treasury bonds and other more certain investments, reacting to fears of a further downgrade of the U.S. credit rating and subsequent jump in interest rates. One agency that rates American government debt, Standard & Poors, marked U.S. bonds down from triple A to AA+ last summer during the congressional fight over raising the U.S. borrowing limit – normally done as a matter of course. That fight spawned the supercommittee as part of a bitterly fought compromise.

Unwilling to concede failure, several members of the debt panel attended a last-ditch meeting at midday Monday. The gatherings proved futile and the committee’s failure was announced a few hours later.

The White House was prodding Congress to take action until the last and said there was still the possibility of action after the committee disbands.

“Congress could still act and has plenty of time to act. And we call on Congress to fulfil its responsibility,” White House press secretary Jay Carney said.

Failure, which many analysts predicted from the outset, came into plain view as top Democrats and Republicans started publicly blaming one another over the weekend.

Republicans said Democrats’ demands on taxes were simply too great and weren’t accompanied by large enough proposals to curb the explosive growth of so-called entitlement programs like the popular Social Security pension system and health care for the elderly and the poor.

The automatic trigger that would now go into effect in 2013 would force about $1 trillion over nine years in automatic across-the-board spending cuts to a wide range of domestic programs and the Pentagon budget, according to the Congressional Budget Office. That action, called a “sequester,” would also generate $169 billion in savings from lower interest costs on the national debt.

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