From Japan 19.10.2013

U.S. congressional deal leaves seeds of another fiscal crisis

The Yomiuri ShimbunDemocrats and Republicans have reached a last-minute compromise deal in the U.S. Congress to avert the worst-case scenario of a debt default by the government.

While it came as a boon that the biggest concern for the global economy has been removed, the seeds of another U.S. government funding crisis remains. It may be said that storms lie on the horizon.

The House of Representatives and the Senate have passed a bill that would raise the federal government borrowing limit beyond $16.7 trillion (about ¥1.64 quadrillion) until next February. President Barack Obama signed the bill into law.

As the federal government is not authorized to issue new Treasury bonds unless the debt ceiling is raised, it would thus not be able to prepare funds for the redemption of Treasury bonds or make interest payments. The deal was reached just before the default deadline set for Thursday.

Concerning the partial shutdown of government functions since Oct. 1 after the failed attempt to pass the government’s budget for fiscal 2014, the bipartisan agreement was reached via the compilation of an interim budget effective until mid-January. The shutdown of government entities ended immediately after Congress passed the temporary budget.

Stock prices responded very well on the New York Stock Exchange. This is possibly because market players favorably received the news that the two dilemmas, which were eroding confidence in U.S. government finances, were resolved simultaneously.

Bipartisan confrontation

The mayhem this time around emerged when the Democratic and Republican parties locked horns over government funding, as a prelude to midterm elections set for next autumn.

Obama declared that he would promote concrete health care measures in line with the Affordable Care Act, dubbed Obamacare, which had been enacted three years ago as the centerpiece of his administration’s domestic agenda.

GOP hard-liners opposed Obamacare and blocked the passage of the federal budget, which included financing for Obamacare, and resisted raising the debt ceiling.

However, U.S. citizens have expressed intense criticism of the futile partisan standoff, and against some Republican lawmakers who stubbornly insist on their assertions. Japan and the International Monetary Fund, among others, issued warnings and called for an early end to the confrontation.

Behind the bipartisan deal, irresistible forces compelled the Republican Party to change its hard-line stance. In addition to pressure both at home and abroad, public opinion served as a tailwind for Obama.

However, fundamental differences between the Democratic and Republican parties have yet to be ironed out. Rather, it is feared that their confrontation will intensify further. This is because of basic differences in opinion between the GOP, which upholds a “small government” ideal and opposes expansion of government spending, and the ruling Democratic Party, which attaches importance to expanding social security programs.

Given the divided Congress, in which the Senate is controlled by the Democrats and the House of Representatives by the Republicans, it is even more difficult to build a consensus. Caution will have to be exercised over the possibility that the partisan confrontation will deepen next year when the interim federal budget expires and the debt ceiling is reached.

Prospects are also uncertain over bipartisan negotiations on measures to reduce fiscal deficits. The United States bears a heavy responsibility for repeatedly bringing the world into chaos due to the dysfunctions of its government.