Obama keeps pressure on Congress for deficit deal
U.S. debt supercommittee fails to reach deal
U.S. President Barack Obama promised Monday to veto any efforts to get rid of automatic spending cuts that are to follow the failure of a congressional "supercommittee" to agree on how to cut the budget deficit by $1.2 trillion.
"We need to keep the pressure up to compromise" on deficit cutting, Obama said.
Failure by the panel will trigger about $1 trillion US over nine years in automatic across-the-board spending cuts to a wide range of domestic programs and the Pentagon budget, starting in 2013, according to the Congressional Budget Office.
This action, called a "sequester," would also generate $169 billion in savings from lower interest costs on the national debt.
Earlier, supercommittee co-chairs Patty Murray, a Democratic senator from Washington, and Jeb Hensarling, a Republican House representative from Texas, said despite "intense deliberations" the members of the panel had been unable "to bridge the committee's significant differences."
Obama blames Republicans
"Despite the broad agreement" among American voters on where to make cuts or increase taxes, Obama said, "there are still too many Republicans in Congress who refuse to listen" or compromise on proposals to increase taxes on the rich.
But nothing prevents Congress from coming up with a compromise in the coming days, he said.
The impasse came after two months of talks. Republicans on the 12-member panel refused to rethink their ideological opposition to higher taxes, while Democrats wouldn't budge on their insistence not to cut certain services.
When Democrats and Republicans came to an 11th-hour agreement to extend America's debt ceiling earlier in the summer, the close of business on Monday was set as a loose deadline for the two sides to come back with a proposal to fix the budget mess.
The failure to reach a definitive deal then on how much to cut and where to make those cuts led rating agency Standard and Poor's on Aug. 5 to downgrade the U.S. credit rating.
Analysts say that after the supercommittee's deadlock, there could be downgrades by other rating agencies.
In addition, the failure raises the question of how a gridlocked Congress would find a way to extend a cut in the Social Security tax. Congress passed it for one year, and some lawmakers support extending it because economic growth remains weak.
Each of those measures puts cash in the pockets of Americans, who can spend it and help the economy grow.
Avery Shenfeld, of CIBC World Markets, raised the question of whether the failure of the supercommittee to make a deal precluded that kind of stimulus, saying that would raise "a serious risk" of having the economy stall.
He dismissed that possibility, saying that Congress could still agree to extend stimulus for another year despite not having reached on deal on how to pay for that with deficit cuts down the road.
Already pessimistic because of European debt concerns, the U.S. impasse pushed U.S. stocks even lower. The Dow Jones industrial average was off almost 250 points, or two per cent, to under 11,550 on Monday.
Volatility seized the stock market in late July, when Congress was wrestling with whether to raise the limit on how much the federal government can borrow.
The Dow rose or fell 100 points or more on 15 trading days in August, 16 in September and 15 in October. Monday was its 10th triple-digit move this month, with six trading days to go.
Defence Secretary Leon Panetta had said the automatic cuts that will take effect with the supercommittee's failure and mean reduced funding of up to $454 billion to the Pentagon would be "devastating" and leave a "hollow force." Defence hawks on Capitol Hill promise they won't allow them to be that deep.
But that effort will be complicated by the insistence of other legislators that the overall amount of the budget cuts be left in place.
Voters' faith deeply shaken
The impasse also showed lawmakers may not be able to make progress on anything budget-related in the coming months, said Robert Pavlik, chief market strategist with Banyan Partners LLC in New York.
"It shows that there's a bigger problem at hand, and if they can't work to resolve these relatively small yet meaningful issues, what's going to happen if we get into a situation like Europe is in?" he said. "And we're kind of headed there."
The budget deficit has forced the United States government to borrow 36 cents of every dollar it spent last year.
Americans' faith in their government has been deeply shaken through the entire affair. Opinion polls suggest a record low of nine per cent of people approve of the job Congress is doing.
But the impasse is also hurting Obama, who has increased the total U.S. debt considerably — to more that $15 trillion — with emergency spending he said was to keep the American economy out of a depression. He pumped billions into the economy after it nearly collapsed in the final months of the George W. Bush presidency.
The panel's failure also sets up a fight within a battle-weary, dysfunctional Congress over renewing a payroll tax cut and jobless benefits for the long-term unemployed, both of which are set to expire at the end of the year. Both proposals are part of Obama's $447-billion jobs plan.
- An earlier version quoted Avery Shenfeld as saying that if the failure of the supercommittee to make a deal precludes renewed stimulus, "the economy faces a serious risk of stalling as tax hikes and unemployment benefit cuts kick in in January." In fact, Shenfeld raised that possibility of those economic consequences only to conclude that the failure of the supercommittee did not preclude renewed stimulus by Congress.Oct 12, 2013 4:55 AM ET
With files from The Associated Press