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Growth concerns grow following $85bn of “dumb, arbitrary” cuts implemented after political stalemate
President Obama has signed into law federal spending cuts worth $85bn, after the Democratic and Republican parties failed to reach agreement on how to balance the nation’s finances.
Known as the sequester the spending cuts, described by the President as being “dumb” and “arbitrary”, were drawn up by US lawmakers two years ago during tense debate over raising the country’s debt ceiling; the amount they government is allowed to legally borrow to pay its bills.
Republicans and Democrats are currently unable to agree raising taxes to address the country’s $16.6tn debt, with the former arguing that spending cuts should be a predominant component of any plan to repair national finances.
Mr Obama has argued that the cuts would slow US GDP output by 0.5% and would cost close to 750,000 jobs.
Before their signing into law the International Monetary Fund had raised concern that the cuts could impact global economic growth.
Commenting on the potential need for the IMF to revise its US growth forecast spokesperson William Murrary said “A lot of it depends upon how aggressively or how fully sequestration is implemented. There will be an impact on global growth”.
Purposely designed to be painful and to spur the warring parties to reach agreement on the national budget, the failure to reach an agreement will lead to a $43bn cut to the Defence department budget and $11bn in cuts to the US’s medical programme, Medicare.
Chuck Hagel, the newly appointed Secretary of Defence, criticised the cuts saying they “will cause pain, particularly among our civilian workforce and their families”.
£26bn of Non-defence discretionary and $5bn of other mandatory spending also comprise the new cuts.
The Democratic president blamed the Republicans for the deadlock, arguing that “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,” the President stated.
Countering the President’s remarks John Boehner, the Republican Speaker of the House of Representatives, said that the President had achieved the tax raising measures he had sought and that now the “discussion about revenue, in my view, is over. It’s about taking on the spending problem”.
