Share

Obama cautious after emergency deal

Washington - US President Barack Obama on Tuesday signed an emergency austerity bill that averted a devastating debt default, but warned the contentious plan was "just the first step" on a long road to economic recovery.

"It's an important first step to ensuring that, as a nation, we live within our means," Obama said in the White House Rose Garden after polarized lawmakers sent him the legislation. "This is, however, just the first step."

The measure lifts cash-strapped Washington's $14.3 trillion debt limit by up to $2.4 trillion while cutting at least $2.1 trillion in government spending over 10 years, a step forecast to drag down already sluggish US growth.

"Slowing down the big-government freight train from its current trajectory will give us the time we need to work toward a real solution," said Republican Senate Minority Leader Mitch McConnell.

Obama spoke after the US Senate voted 74-26 to pass the measure - which cleared the House of Representatives by an overwhelming 269-161 margin on Monday - with just hours to spare before a deadline that could have triggered a first-ever US default on its debt payments.

Congressional approval paid immediate dividends as the Fitch ratings agency said the hard-fought 11th-hour compromise would spare Washington from losing from its sterling Triple-A debt rating.

A downgrade would have likely led to a spike in US interest rates, making debt payments more pricey and hurting Americans holding flexible-rate loans - anyone carrying credit-card debt, or seeking an automobile loan.

Still fragile

But Fitch said it would keep a close eye on the country's long-term finances and pressed for "a credible multi-year deficit reduction plan" if Washington is to stay in the elite club of healthy, low-risk debtor economies.

Obama's 2012 reelection bid will turn on voters' perceptions of his handling of the US economy, which has labored under historically high unemployment above nine percent as it struggles to recover from the global meltdown of 2008.

The president promised that the deficit-cutting would not starve education and research nor happen "too abruptly while the economy is still fragile" and railed against the "manufactured crisis" over the debt limit.

Republicans have promised that the spending cuts will create jobs, but top Wall Street economists have warned the austerity measures will actually be a drag on already sluggish US growth even as government stimulus measures run out.

The overall shift from priming the US economy to government belt-tightening is expected to reduce US growth next year by about 1.5 percentage points, according to JPMorgan Chase economists.

The vote came as the US Commerce Department reported that US consumer spending, the economy's key driver, fell 0.2% in June relative to May, while personal income was basically stagnant, with just a 0.1% increase.

Both figures fell short of analyst's expectations and offered the latest discouraging omen about the US economy, which grew at a feeble feeble 1.3% in the second quarter of 2011, much worse than economists had expected.

Despite such wrenching worries, major US companies like 3M, Caterpillar, Goodyear, Microsoft, and Apple have been packing away record profits.

Moreover, if the current trend keeps up, the S&P 500 companies are poised to have their most profitable quarter ever, according to Standard & Poor's analyst Howard Silverblatt.

Obama signalled that he would campaign for raising tax revenue on the rich and wealthy corporations, a proposal that has already generated lockstep opposition from Republicans who contend it would smother job creation.

"I've said it before, I will say it again: We can't balance the budget on the backs of the very people who have borne the biggest brunt of this recession," he said. "Everyone's going to have to chip in. That's only fair."

Bully

Democrats, especially on the party's left flank, have expressed outrage that the bargain Obama struck with his Republican foes omitted any tax increase on the wealthy.

"It is my hope that we have reached the high tide of an ideological movement that has sought to hold tax cuts for the wealthy sacred, while imposing increasingly draconian cuts on American families," said Democratic Senator Carl Levin, who voted for the bill.

In a veiled slap at Obama, Levin also stressed that "success also is going to require presidential leadership and stronger use of his bully pulpit."

The new law calls for more than $900bn in cuts over the next 10 years - $350bn of it in defence - and creates a special congressional committee tasked with coming up with another $1.5 trillion in cuts to report by November 23, with Congress voting by December 23.

A failure by the committee would trigger painful, automatic cuts to key priorities of both parties.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.90
+0.2%
Rand - Pound
23.86
+0.2%
Rand - Euro
20.36
+0.3%
Rand - Aus dollar
12.31
+0.2%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent-ruolie
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders