President Barack Obama formally ordered broad cuts in US government spending on Friday night after he and congressional Republicans failed to reach a deal to avert automatic reductions that could dampen economic growth and curb military readiness.
As the United States staggered into another fiscal crisis, the White House predicted that the spending cuts triggered by the inability of Obama and lawmakers to forge a broader deficit-reduction agreement would be “deeply destructive” to the nation’s economic and national security.
“Not everyone will feel the pain of these cuts right away. The pain though will be real. Beginning this week, many middle-class families will have their lives disrupted in significant ways,” Obama told journalists after his meeting with Republican and Democratic congressional leaders.
Late on Friday, Obama signed an order that put in effect the across-the-board government spending cuts known as “sequestration.” Government agencies will now begin to hack a total of US$85 billion from their budgets between Saturday and October 1.
Half of the cuts will fall on the Pentagon. Defence Secretary Chuck Hagel said the reductions put at risk “all of our missions.”
Congress and Obama could still halt the cuts in the weeks to come, but neither side has expressed any confidence they will do so. Both Democrats and Republicans set the automatic cuts in motion during feverish deficit-reduction efforts in August 2011.
Friday’s events marked the first budget showdown in Washington of many in the past decade that was not somehow resolved at the last minute - often under pressure from rattled financial markets. Markets in New York shrugged off the stalemate in Washington on Friday as they have for months.
Democrats predicted the cuts could soon cause air-traffic delays, meat shortages as food safety inspections slow down, losses to thousands of federal contractors and damage to local economies across the country, particularly in the hardest-hit regions around military installations.
At the heart of Washington’s persistent fiscal crises is disagreement over how to slash the budget deficit and the US$16 trillion national debt, bloated over the years by wars in Iraq and Afghanistan and government stimulus for the ailing economy.
Obama wants to close the fiscal gap with spending cuts and tax hikes. Republicans do not want to concede again on taxes after doing so in negotiations over the “fiscal cliff” at the New Year.
Public outrage, if it materializes, would be the most likely prod for a resolution as the impact of the spending cuts starts to be felt in the coming weeks and months.
As a percentage of total government spending every year, US$3.7 trillion, the actual spending reductions are small. But because safety-net programs such as Social Security and Medicare will be untouched, the brunt falls mostly on federal government employees rather than direct recipients of aid.
The US government is the nation’s largest employer, with a workforce of roughly 2.7 million civilians spread across the country. If the cuts stay in place, more than 800,000 of those workers could see reduced work days and smaller paychecks between now and September.
Furlough notices warning employees and their unions started to go out earlier this week and the pace picked up on Friday after it became clear that talks at the White House between Obama and congressional leaders would be fruitless.
While the International Monetary Fund warned that the belt-tightening could slow US economic growth by at least 0.5 of a percentage point this year, that is not a huge drag on an economy that is picking up steam.