US headed for abyss despite fiscal deal – China.(MT). BEIJING: China’s official news agency warned the United States on Wednesday it was heading toward an “abyss you can never come out of” even though Congress backed a deal to avert the “fiscal cliff.”
After the House of Representatives approved a bill which avoids tax rises for most Americans and delays automatic spending cuts, a commentary by Xinhua pointed to bigger fiscal challenges ahead for US lawmakers.
“As the world’s sole superpower, the United States is clearly not Greece,” Xinhua said. “But economics and common sense do not lie. People, or governments, can overspend for some time, but they simply cannot live on borrowed prosperity forever.”
China, which has the world’s biggest foreign exchange reserves, is a major buyer of US Treasury debt.
The state- run news agency identified the US public debt of nearly $ 16.4 trillion— more than 100 percent of its gross domestic product— as Washington’s key challenge, calling it a “fiscal abyss” that made Europe’s sovereign debt crisis seem a “mere hiccup.”
“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 said.
“In a democracy like the United States, tax increases and spending cuts, the exact dose of medicine needed to cure its chronic debt disease, have long proved hugely unpopular among voters. So the politicians have chosen to kick the can down the road again and again.
“But as we all know, the can will never disappear,” the commentary added. “Sometime and somewhere, you might trip over it and fall hard on the ground, or in the US case, into an abyss you can never come out of.”
The political feuding which spanned the Christmas and New Year holidays reflected the near impossibility in forging compromise in Washington, where power is divided between a Democratic president and the Republican House.
It was also a signal that Obama, despite a thumping reelection win in November, may find it tough to achieve second term legislative goals that include immigration reform, clean energy legislation and gun control.
The truce in dysfunctional Washington is likely to be brief, given the fight that will ensue over the spending cuts that now loom at the end of February as well as over regular budget bill extensions.
Those fights will be paralleled by one over Obama’s request for Congress to lift the country’s $ 16 trillion borrowing limit. Republicans are already demanding concessions on expenditures in return for allowing it to rise.
Obama issued a blunt warning on Tuesday that he would not play ball with Republicans by enjoining in another batter over the debt ceiling.
“If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff,” he warned.
House Speaker John Boehner, smarting from a defeat by the reelected president on tax rates, warned that the focus would now turn to Republican turf of tightening the budget.
“Now the focus turns to spending. The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the ‘balanced’ approach he promised,” Boehner said.
The Republican leader promised “significant spending cuts and reforms to the entitlement [ social welfare] programs that are driving our country deeper and deeper into debt.”
Senate Republican minority leader Mitch McConnell, a key figure in engineering the fiscal cliff deal, also warned of spending cuts.
“That’s a debate the American people want. It’s the debate we’ll have next. And it’s a debate Republicans are ready for.”
The legislation raises taxes on individuals earning more than $400,000 per year, and on couples earning more than $450,000, while retaining tax cuts for Americans with lower incomes put in place under the administration of former president George W. Bush.
The deal also included an end to a temporary two percent cut to payroll taxes for Social Security retirement savings— meaning all Americans will pay a little more— and changes to inheritance and investment taxes.Read the full story here.