Obama Seeks Compromise On Sequester

Plunging over the Fiscal Cliff would have delivered automatic tax increases and spending cuts which, many feared, would drag the US back into recession. An overtime solution deflected the tax increases somewhat, but the spending cut issue was deferred until the first of March. Since no agreement was achieved on the spending cuts, a series of automatic reductions has kicked in which is designed to save $85 billion from domestic and military programmes. The measures will take up to 7 months to fully kick-in and the Obama administration is trying to find common ground with the Republican party to modify the cuts and mitigate their damage to the American economy. It is feared that the cuts could knock 0.5% off GDP and cost thousands of jobs if they are not softened.

The Republicans want cuts to social spending and vehemently oppose any changes to taxation, arguing that they gave ground on this issue in the original accord. The Democrats are arguing that tax loopholes (favouring the wealthy) should be closed to make much of the necessary savings making it look as if the Republican Party only cares about the wealthy and not “average Americans”. An interesting opinion on this debate was published in the Washington Post recently.

Mr Obama has held three meetings on Capitol Hill this week to try to strike a deal, but it remains elusive, despite his willingness to agree to cuts to Medicare and Medicaid programmes which had been sacred Democratic cows.

Unless some accommodation on the budget is arrived at by the end of this month (which is likely), the government will be unable to meet all its obligations.

On a brighter note, US consumer spending was up by 1% last month, complimenting better news on the employment front – now if the politicians can just get their act together…