US Politics Analysis: Can America Overcome "Deficit Fear" to Deal with Unemployment?

Senator Patty MurrayFor the last two years, debate over the deficit has dominated political discourse in Washington, driven by a Republican majority in the House. Along the way voters’ main concern --- policies that create jobs --- has been sidelined as Democrats have concentrated on defending the entitlement programs, primarily Medicare and Social Security, that Republicans have targeted for reform.

However, that may be about to change. Senator Patty Murray, the Democratic Chair of the Budget Committee, is not as respectful of the need to build coalitions as her predecessor. Murray is a conviction politician, and she feels her middle-class constituency is being betrayed by a callous GOP caucus more interested in abstract arguments about deficit reduction than the human costs of a damaged welfare system.

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US Politics Feature: Explaining the Next Fiscal Crisis...Coming To You in 6 Weeks

(Cartoon: Monte Wolverton)

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After the recent drama and supposed escape from the "fiscal cliff", two developing stories in Washington will affect the global economy. The first is whether Congress can pass measures to address three additional fiscal dilemmas, all of which need to be resolved by the end of March. The second, a vital sub-plot in the larger play, is the intentions and aims of the Republican-controlled House of Representatives.

Near the end of February, the US Treasury will have exhausted all contingency measures to avoid breaching the debt limit, currently $16.4 trillion, and the US will immediately default on 40% of its fiscal obligations. America could still afford to pay foreign debts through its continual receipts of tax revenues. It could even fund Social Security and other low-income payment programs...provided it is willing to make cuts such as the closure of the FBI.

As the talks on raising the debt limit reach the status of Urgent, Congress will also have to address the "sequestration cuts", delayed for two months by the fiscal cliff deal.

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