US still far from tackling bulging debt

(From the ft.com) The grim report this week from congressional analysts that the US budget deficit would hit a record this year provoked virulent criticism of the Obama administration. Left largely unsaid, however, was that the short-term surge in the deficit was the product of the $858bn tax-cut deal made in December between the Republican leadership and the US president.

While the agreement proved the political system works when pushing through tax breaks and spending increases, the debate underlined the long, bitter slog that lies ahead in tackling America’s bulging debt.

The Democrats, Republicans and the Obama administration have begun to warily circle each other in an elaborate series of negotiations over the budget which will last for months, if not the whole year.

Hanging over the debate is the unlikely but nonetheless real threat that financial markets will take fright at the gloomy fiscal picture, demanding higher interest rates to buy US government debt.

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