Friday 28 December 2012

The Fiscal Cliff

US heading over the fiscal cliff: Senate majority leader

Senate Majority Leader Harry Reid talks to reporters at the US Capitol in Washington, DC, on December 11, 2012.
Senate Majority Leader Harry Reid talks to reporters at the US Capitol in Washington, DC, on December 11, 2012.

The United States looks to be headed over the so-called fiscal cliff as the country’s politicians remain divided on a solution to tackle the looming economic crisis, the Senate majority leader says.
27 December, 2012

Speaking on the Senate floor on Thursday, Harry Reid said that Republicans, who control the House of Representatives, are to blame for the breakdown in the negotiations to reach a deal before New Year's Eve deadline.

Reid also accused the top Republican in Congress, John Boehner, of acting in dictatorial ways that prevent a solution to the impending crisis. 
The US House of Representatives is "being operated with a dictatorship of the speaker," said the top Democrat in the Senate, adding that "Boehner seems to care more about keeping his speakership than about keeping the nation on sound financial footing."

Boehner will face an internal re-election contest among House Republicans on 3 January.

Reid also noted that he was unsure if there was enough time between now and the end of the year to avert the fiscal cliff.

In response, Boehner’s spokesman Michael Steel issued a statement saying that "Senator Reid should talk less and legislate more. The House has already passed legislation to avoid the entire fiscal cliff. Senate Democrats have not."

The fiscal cliff refers to a combination of tax increases and spending cuts that are set to come into force on January 1, unless Republicans and Democrats can come together with an alternative budget plan. Economists warn that such a shock could send the economy back into recession.

Republicans and Democrats are still at loggerheads over the terms of a deal on how to avoid $680 billion in automatic increases in taxes and spending cuts.

On Wednesday, President Barack Obama was to cut short his Hawaiian vacation and returned to Washington early Thursday for a final effort to cut a budget deal by New Year's Day.

Talks between Obama and congressional leaders collapsed on December 20 when Republicans abandoned House Speaker John Boehner's backup plan, which called for raising taxes on those making more than $1 million a year.

Obama and members of the US congress left Washington on December 21 for a Christmas recess, with talks to avert the fiscal cliff in limbo.

The growing worries and pessimism have already impacted US consumer confidence. A report released on December 20 showed that consumer confidence index fell to a four-month low in December amid American public’s fear that the economy would fall over the fiscal cliff.

"People are hearing about (the cliff) and it negatively impacts confidence and investor sentiment and even holiday sales," said Todd Schoenberger, managing partner at Landcolt Capital in New York. 

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