Now that Obama has been reelected as the US President, economic considerations are riding as high as political considerations: And the most critical economic deadlock to be faced is that of the fiscal cliff.
The $600 billion combination of spending cuts and tax increases will materialise come January 1, unless the US Congress reaches a consensus on preventing it in the lame-duck session to be held before the Christmas holidays.
Whats critical is the continuation of the deadlock over the fiscal cliff debate now that Obama has been reinstated with uncertainty increasing each day the matter isn addressed. If the fiscal cliff comes into place, the US economy will plunge into a deep recession, having colossal effects on global markets as well.
"The S&P 500 has dipped nearly 4 percent from its high in September. US government bond yields have fallen, as traders anticipate that a win for Obama and further gridlock in Washington will shrink the chances of swift agreement on tax and spending," highlighted the Financial Times before the election results came in.
The critical point remains the resolution of the fiscal cliff for Obama and the Congress.
Following right behind the fiscal cliff, the predicament of the US debt ceiling also bears down on US economic pressures. Recall that a political rift between the Republicans and Democrats regarding the resolution of the debt ceiling last year in August had led to the precious triple-A credit rating of the US being downgraded.
The current debt threshold of $16.4 trillion is expected to be reached by the end of this year, putting the worlds largest economy at risk of default, unless the crisis can be averted, for example, by raising the debt ceiling again.
The House Republicans are against raising the countrys debt ceiling, until structural changes are made to cut public spending. Obama, meanwhile, argues that resolving the conflict, such as by raising the debt ceiling, is more critical in the immediate term than staying in limbo and putting the US and global economy in uncertainty.
"The president made clear that we
e not going to recreate the debt ceiling debacle of last August. It is simply not acceptable to hold the American and global economy hostage to one partys political ideology," Jay Carney, the White House press secretary was quoted by the New York Times earlier this year.
With the media having done its share of highlighting these issues quite a bit, the fiscal cliff and debt ceiling continue to be a top priority for Obamas newly-elected government. Failing to reach a resolution on these could mean significant consequences, not just for the US, but for the world economy in general.