America narrowly avoided the so-called fiscal cliff with an extra time agreement to raise taxes on Americans with incomes above the $400000 mark. The deal was a compromise since the Democrats, under President Obama, wanted the threshold to be set at the $250000 mark whereas their Republican opponents wanted to set the bar at $1 million. The deal fudged the issue of mandatory spending cuts and raising the so-called debt ceiling. Politicians have two months to negotiate acceptable cuts, but the USA is set to hit the debt ceiling early next month. The ceiling is currently set at $16.4 trillion and acts as a cap on government borrowing – however, inability to borrow further funds means that the US could default on existing debts.
Speaking at a White House news conference, President Obama called on his rivals not to use the debt ceiling as a bargaining chip, claiming that it would be absurd. He warned “They will not collect a ransom in exchange for not crashing the economy.” However, John Boehner, Republican House Speaker has already indicated that the issue of cuts will be intertwined with ceiling discussions.
Throwing down the gauntlet to the Republicans, the President called on them to put the country first: "The full faith and credit of the United States of America is not a bargaining chip. And they better decide quickly because time is running short. We are not a deadbeat nation. While I'm willing to compromise and find common ground over how to reduce our deficits, America cannot afford another debate with this Congress about whether or not they should pay the bills they've already racked up. What I will not do is to have that negotiation with a gun at the head of the American people."
Mr. Obama went on to clarify that he was happy to have a debate with the Republicans over US fiscal policy, but not until the debt ceiling had been increased. The problem is that whilst Obama won a decisive election for the presidency, his party did not take a majority of seats in the lower house, although they control the Senate. As with the “fiscal cliff” debacle, both the debt ceiling and spending cut debates are likely to be an exercise in brinkmanship and both will carry potential implications well beyond US borders.