US economy at risk in new Obama, Republicans clash

America's political leaders are once again playing Russian Roulette with the world's single largest economy.

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, a multi-billion 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 $55 billion and non-defense discretionary spending by $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 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 one 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.


The sequester showdown has degenerated into a game of who will blink first, likely to climax after the sequester goes into effect.

Right now, neither side can even agree on who came up with the idea of the sequester. Republicans blame Obama. The White House notes that both chambers of Congress passed it.

The White House is confident, flexing muscle after Obama's re-election win and triumph over Republicans in the fiscal cliff tax showdown.

Obama is proposing a "balanced" package of spending cuts and increases in revenue from closing tax cut loopholes in a "buy down" solution so Congress can come up with a long-term budget deal to end successive budget crises.

His hardball media strategy is rooted in a bid to saddle Republicans in the unpopular Congress with the blame for the calamitous post-sequester scenarios.

"Americans will lose their jobs because Republicans made a choice for that to happen," White House spokesman Jay Carney said.

Republicans are adamant the rise in tax rates for the wealthy they conceded last year is all the revenue Obama is going to get.

Some conservatives are relaxed about the sequester -- as their focus is purely on cutting spending.

But House Republican Speaker John Boehner said in a Wall Street Journal op-ed Wednesday it was an "ugly and dangerous" way to cut the deficit.

"Mr President, we agree that your sequester is bad policy. What spending are you willing to cut to replace it?" Boehner wrote.

The Obama-backed Democratic plan to forestall the sequester is not cutting much ice either.

"I wouldn't line my bird cage with it, and I don't have a bird," Republican congressman Trey Gowdy told AFP.


Privately, White House officials believe that pressure on Republicans will get so great that they will be forced into a spending and revenues deal.

The politics seem to favor the president -- he is more popular than Republicans and polls show voters like the idea of more taxes for the rich.

The danger for Obama is that if the sequester is not quickly fixed and the economy is damaged his presidential legacy is on the line.

Political capital he needs to drive through key second-term agenda items such as immigration reform and gun control could also be tarnished.

Obama will crank up the blame game next week with campaign-style visits to regions likely to be hit by the sequester cuts.

Republicans are betting that apocalyptic scenarios of job losses, limp border enforcement and lax military readiness will not unfold immediately on March 1.

Conservatives think the president wants a solution more than they do so see the onus as on him to carve deeper spending cuts than he has so far offered.

Typically for Washington, everyone may look for a face saving way out -- whether or not it fixes long-term deficit problems.

A new "continuing resolution" must be passed by Congress to maintain funding for government operations by the end of March.

Many observers believe both sides could use this mechanism to compromise on spending and revenues and fix the sequester retroactively.