One crisis averted, but America is braced for a backlash

Barely escaping the calamity of a debt default, a humbled United States yesterday reluctantly set itself on a new austerity course amid still poisonous clouds of uncertainty about where the cuts in spending would come.

Moments after a deal on raising the debt ceiling and launching a programme of cuts in the deficit overcame a final hurdle on Capitol Hill, President Barack Obama stepped into the White House Rose Garden to acknowledge that the recent weeks of brinkmanship in Washington had already damaged a weak economic recovery.

"It was something that we could have avoided entirely," he said, agreeing that "dysfunctional government" was unacceptable to voters. "It should not take the risk of default, the risk of economic catastrophe" to get politicians to do their jobs, he said.

In the same breath, however, he set the stage for further clashes with a vow to ensure that a second round of cuts envisaged by the deal includes increases in some tax rates.

Obama forsook the usual public ceremony to sign the new law, which contained elements sufficient to offend just about everyone in Washington but did have the merit of preventing a default by the world's biggest economy which might have set off a new global recession.

Liberals wail it will hurt the poor and protect the rich; Republicans are staring at the prospect of the first serious cuts in US defence spending.

The complex package provides a mechanism for the US$14.3 trillion ($16.5 trillion) debt ceiling to be raised in several stages through the end of next year and thus beyond the 2012 presidential contest. Even so, it almost guarantees that the country will see yet more partisan fighting over fiscal policy and more gridlock.

In particular, it calls for the creation of a bicameral, bipartisan supercommittee to agree on cuts of as much as US$1.5 trillion over 10 years that will come on top of the US$917 billion already called for in its provisions. The work of the committee - its members, six from each party, will be appointed within two weeks - is certain to be highly charged with an end-of-November deadline for making recommendations.

While they decisively lost this round, Democrats and Obama will again insist that the road to reducing the deficit must include some increases in taxation to boost revenue. It is a goal that Republicans, heavily influence by the anti-tax Tea Party flank, will once again resist ferociously.

Saying that reforming the tax code must be on the table for the committee, Obama said America "can't balance the budget on the backs of the very people who have borne the brunt of this recession".

Already yesterday, Republicans were signalling that their appointees to the supercommittee would be pledged to resist any revenue increase solution. Party leaders were "not going to select anyone who is going to vote for taxes," warned Senator John Cornyn.

A snap CNN poll about the new package found that approval for how Congress handled the issue is at a rock-bottom 14 per cent. A Pew poll reported views such as "ridiculous", "disgusting" and "stupid".

Obama and Speaker John Boehner have also been damaged. Only 18 per cent had a positive view of Obama's handling of the mess. For Boehner the figure was 11 per cent.Independent