WASHINGTON — US President Barack Obama has cut short his holidays in Hawaii and returned to Washington to try to reach a deal to avoid the so-called fiscal cliff.
Unless a compromise is found, tax increases and huge spending cuts come into force on January 1, threatening to tip the US back into recession.
However, Democrats and Republicans are still at loggerheads over the issue.
Meanwhile, the US Treasury has announced measures to prevent it hitting a legal limit on its borrowing.
In an open letter to the Democrat US Senate majority leader Harry Reid, Treasury Secretary Timothy Geithner said the Treasury would enact a series of extraordinary accounting measures to free up about $200 billion from the government’s official borrowing figure.
He said that the measures should prevent the government from reaching the $16.4 trillion “debt ceiling” — the legal limit set by Congress on how much the US government can borrow – for about another two months beyond 31 December.
The measures include:
* Halting certain financial assistance provided by the federal government to state and local governments;
* Temporarily halting investments in new government debts by state retirement funds for civil servants and postal workers, and by an emergency fund that the government can draw on to defend the value of the dollar.
Geithner warned that without them, the government would run out of cash on Monday and “the United States would otherwise default on its legal obligations”.
Legislation passed by Congress sets out how much the US government spends on the likes of social security and defence, whilst also legally defining how much the government can raise in taxes.
By imposing a third legal limit – the debt ceiling – the government faces a potentially impossible situation in which it must either disregard the debt ceiling, raise taxes without legal authority, or else default on some of its spending obligations. (BBC)