US talks enter endgame as stock markets fall again
US president Barack Obama and congressional leaders meet tonight for the first time since November with no sign of progress in resolving their differences over the federal budget and low expectations for a "fiscal cliff" deal before January 1st.
Instead, members of Congress are increasingly looking at the period immediately after the December 31st deadline to come up with a retroactive fix to avoid the steep tax hikes and sharp spending cuts that economists have said could plunge the country into another recession.
With taxes on all Americans set to rise when rates established under former president George W. Bush expire on December 31st, politicians would be able to come back in January and take a more politically palatable vote to cut some of the tax rates.
World stocks and the euro slipped again today while US shares fell for a fifth day as US politicians planned to make another effort to break the deadlock. The MSCI all-world share index was down 0.2 per cent and the pan-European FTSEurofirst 300 ended down 0.6 per cent. In US trading, the Dow Jones industrial average was down 69.42 points, or 0.53 per cent, at 13,026.89. The euro was down 0.1 per cent on the day at $1.3221, having slipped to a session low of $1.3164.
Some in the market are now resigned to Washington going beyond the New Year's Day deadline, as long as a serious agreement on deficit reduction comes out of the talks in early January.
"Regardless of whether the government resolves the issues now, any deal can easily be retroactive. We're not as concerned with Jan. 1 as the market seems to be," said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments.
The new factor in the mix was involvement by Republican Senate minority leader Mitch McConnell of Kentucky, who held conversations with Obama this week and said he expected a new proposal from the president that he would consider.
The White House spent much of yesterday stifling expectations for any new offer from Mr Obama, beyond the limited fallback plan he outlined in vague terms on December 21st, which would protect what he described as "middle class Americans" from the tax hikes, extend unemployment insurance and lay the "groundwork for further work" on deficit reduction and tax reform.
The major sticking point on taxes is Republican opposition to hikes on anyone, particularly in the absence of heavy cuts in spending for so-called entitlement programs such as Medicare and Medicaid, the government-run health programs for senior citizens and the poor.
Democrats in Congress want to keep lower tax rates for most Americans but raise them on those earning above $250,000 a year.
"The wealthy have got to kick in," senator Debbie Stabenow, a Michigan Democrat, said earlier today on CNN. "The tough part is in the House, where they have taken this very extreme position" of "protecting the wealthy at all costs," she said.
"It's feeling very much to me like an optical meeting than a substantive meeting," said Republican senator Bob Corker of Tennessee, noting that it was not a sign of urgency to set a meeting for mid-afternoon with a deadline just days away.
"Any time you announce a meeting publicly in Washington, it's usually for political theater purposes," senator Lindsey Graham, a South Carolina Republican, said yesterday on Fox News.
"When the president calls congressional leaders to the White House, it's all political theater or they've got a deal. My bet is all political theater," said Graham, adding that he did not believe an agreement could be reached before the deadline.