US economy at risk in new Obama-Republican Party debt ceiling clash

Fresh from a debt ceiling showdown and year-end fiscal cliff brinkmanship, President Barack Obama and Republicans are now locked in a test of wills over huge budget cuts due to come into force on March 1.

The White House and independent analysts fear the so-called “sequester” could cost hundreds of thousands of jobs and crimp already slow economic growth, and there is little hope in Washington that it can be averted.

The Sequester

The sequester, a multibillion dollar package of spending cuts, was designed never to come into force. It is a measure of the political estrangement in Washington that it looks certain to do so.

The idea was that the cuts would be so devastating to domestic spending favored by Democrats and defense spending beloved of Republicans that they would have no choice but to get together on a deal to cut the deficit.

But no deal is done and prospects of a last-minute agreement seem slim.

So on March 1, cuts that will slash defense spending by US$55 billion and nondefense discretionary spending by US$27 billion this year look set to come into force.

In a wider sense, the sequester is just the latest reflection of starkly differing political philosophies dividing Washington.

Republicans see bloated spending driving the economy to disaster. Obama refuses to countenance social programs being decimated or the imposition of a budget that is balanced in a way that he says will hurt the middle class.

The Cost

The cost of the sequester, if allowed to unfold in full, could be devastating, in human and economic terms.

The Bipartisan Policy Center in Washington estimates that 1 million jobs could be lost.

The Congressional Budget Office predicts growth, already down by 0.1 percent last quarter, could slip 0.7 percent as government departments and related businesses stagger under the sequester's impact.

Obama, seeking to pressure Republicans into a deal, paints a dire picture of misery to come after March 1.

“If Congress allows this meat cleaver approach to take place, it will jeopardize our military readiness,” Obama said Tuesday, warning emergency workers could be also hampered and thousands of teachers could be laid off.

Defense Secretary Leon Panetta warned Wednesday almost all the Pentagon's 800,000 civilian employees would face furloughs starting in April.

The military will cut back on training and repairs while the Navy has halted the deployment of the aircraft carrier Harry S. Truman to the Gulf.

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