US lawmakers have abandoned their efforts to rein in the country's debt. A congressional "supercommittee" failed to reach agreement on Monday, unable to resolve disputes over taxes and who will bear the burden of spending cuts.
The disagreement may delay any major debt reduction agreement until 2013, after next year's presidential and congressional elections.
The panel's failure will trigger about US$1 trillion US over nine years in automatic across-the-board spending cuts to a wide range of domestic programs and the Pentagon budget, starting in 2013.
This action, called a "sequester," would also generate US$169 billion in savings from lower interest costs on the national debt.
US President Barack Obama promised on Monday to veto any efforts to get rid of automatic spending cuts that are to follow the supercommittee's failure.
"There will be no easy off ramps on this one," Mr. Obama said. "We need to keep the pressure up to compromise - not turn off the pressure. The only way these spending cuts will not take place is if Congress gets back to work and agrees on a balanced plan to reduce the deficit."
"Although Congress has not come to an agreement yet, nothing prevents them from coming up with an agreement in the days ahead. They can still come together around a balanced plan," Mr. Obama added.
"We've got a lot of work left to do this year. Before Congress leaves next month, we have to work together to cut taxes for workers and small business owners all across America. If we don't act, taxes will go up for every single American, starting next year. And I'm not about to let that happen."
Report: Obama keeps pressure on Congress for deficit deal [CBC, 21 Nov 2011]
Video: Watch President Obama Speak on the Supercommittee Failure [PBS (Youtube), 21 Nov 2011]
American lawmakers were supposed to agree on at least US$1.2 trillion in budget cuts. But their inability to reach a deal has stoked doubts about their ability to overcome partisan gridlock between the Republicans and Democrats, endangering America's fiscal health.
Analysts warn the committee's failure to reach a deal may pose an immediate threat to the struggling US economy.
Several tax programs, including a payroll tax holiday, also risk expiring at the beginning of next year. This will affect household spending, which accounts for about 70 percent of the US economy.
Analysis: Supercommittee Failure Poses Threat to U.S. [Bloomberg, 21 Nov 2011]
The debt issue is likely to dominate next year's elections. The Republicans and Democrats are blaming each other for the gridlock.
US President Barack Obama is likely to campaign for the 2012 Presidential Elections by contrasting his balanced approach to the Republican's sole reliance on spending cuts, which will affect healthcare and social security.
But Republicans have instead accused Mr. Obama of failing to address the country's problems. “He’s done nothing,” said Mitt Romney, one of the leading Republican candidates. “It’s another example of failed leadership."
Analysis: Obama Weighed Risks of Engagement, and Decided to Give Voters the Final Say[New York Times, 21 Nov 2011]
Rating agencies Standard & Poor's and Moody's said there will no immediate further downgrade of their credit ratings on the United States despite the failure of the congressional "super committee" to reach an agreement on debt reduction.
But Fitch, the third leading ratings agency, which currently has the most positive rating of the three on US. debt, said it could cut the outlook on its "triple-A" rating, with a downgrade an outside possibility.
In August, S&P downgraded its top-tier rating on the US on concerns over the government's budget deficit and rising debt burden.
S&P said the committee's inability to agree on fiscal measures was consistent with their August decision to lower their US rating.
Moody's said the committee's failure would not by itself lead to a rating change, saying the outcome was "informative for the rating analysis but not decisive"
In Asia, shares fell after markets opened on Tuesday morning. Debt worries in the US, as well as the continuing problems in Europe, have been weighing heavily on Asian markets.
Report: Rating agencies: No US downgrades after debt failure [Reuters, 21 Nov 2011]
Report: Asian shares slip after US debt reduction talks fail [BBC, 22 Nov 2011]