The USA has an enormous problem in the shape of its debt – a problem that did not occur overnight. The debt mountain in the USA is estimated to be $16.6 trillion – roughly $83000 per head of population, given that the population of the USA is something like 200000000 souls. Clearly, something has to be done about this. One move that was made was to place a cap (the debt ceiling) on budget expenditure, but the problem, in the depths of the global financial crisis, was that spending limit was exceeded requiring approval of the Congress.
The horse-trading in the run-up to the 2012 election meant that agreements were acrimonious, partisan affairs which only happened at the last minute. In a bid to concentrate minds, legislators came up with the Fiscal Cliff proposal which mandated tax hikes and spending cuts if no better agreement was reached beforehand. In the event, although the Fiscal Cliff deadline was missed, an agreement was reached over tax that saw rich Americans paying more tax, but also ended some tax breaks for average Americans. The second part of the Fiscal Cliff, the mandatory spending cuts, was deferred until the first of March.
Despite a series of meetings between the leadership of the Republican and Democratic parties, no agreement was reached by the deadline, forcing President Obama to sign off on $85 billion of cuts which will come in over the next 7 months or so.
The President, naturally, laid the blame for the debacle at the door of his opponents: "They've allowed these cuts to happen because they refuse to budge on closing a single wasteful loophole to help reduce the deficit. We shouldn't be making a series of dumb, arbitrary cuts to things that businesses depend on and workers depend on".
It is estimated that the cuts could cost 750000 jobs in America and reduce the nation’s GDP by 0.5%. For their part, the Republicans point out that the automatic cuts were a Democratic proposition and that they feel they had given ground over taxation during the Fiscal Cliff crisis, part one, over the New Year. Either way, the American people are likely to feel let down by their elected representatives; their squabbling will do little to resolve the economic difficulties facing the nation.