Obama warns of spending cut risks

Budget impasse holding back economy: survey

WASHINGTON, Feb 26, (AP): President Barack Obama is traveling to a Virginia shipyard on Tuesday to press his argument that looming spending cuts could hurt military readiness, while Republicans are criticizing him for taking his argument outside Washington instead of staying to resolve a political standoff that experts believe is already slowing the fragile US economy.

With just three days to go, there was no indication the White House and congressional Republicans were actively negotiating a deficit-reduction agreement needed to prevent $85 billion in automatic budget cuts set to begin taking effect Friday. Obama wants any deal to include both targeted cuts and tax increases, while Republican congressional leaders insist that that any further deficit reduction should come from reduced spending alone.

The latest Associated Press Economy Survey of 37 economists found that most believe the budget impasse is already dragging down the economy even more than any reluctance by Americans to spend freely. They worry that the budget fights in Washington will persist for much of 2013 and hinder growth.

Obama planned to appear Tuesday at Virginia’s largest industrial employer, Newport News Shipbuilding, to stress that the spending cuts will idle military resources like naval aircraft carriers. The president warned Monday that if cuts to naval spending take effect, the company’s “workers will sit idle when they should be repairing ships, and a carrier sits idle when it should be deploying to the Persian Gulf.”

Testifying Tuesday before a House subcommittee, US military leaders urged Congress to act swiftly to stop the reductions. Members of the Joint Chiefs of Staff described how national security would be put at risk if they are forced to make deep decreases in spending for personnel, training, and equipment modernization programs. The Pentagon faces a $46 billion budget reduction through the end of September, and billions of dollars in additional cuts would come in future years as long as the budget-cutting mechanism, known as sequester, remains in effect.

Affect

The White House has warned that the cuts could affect everything from commercial flights to classrooms to meat inspections and lead to furloughs for hundreds of thousands of workers.

Despite the grim predictions, there is breathing room for political settlement if Friday’s deadline comes and goes. Federal workers would be notified next week that they will have to take up to a day every week off without pay, but the furloughs won’t start for a month due to notification requirements. Provisions are in place to preserve the most crucial services.

The political standoff over the US budget is slowing the US economy — more so than any hesitance by Americans to spend freely.

That consensus emerges from the latest Associated Press Economy Survey just as the budget impasse in Washington is about to trigger automatic spending cuts across the economy.

Many of the economists think consumer spending has slowed in response to higher tax burdens but will rebound later in the year. By contrast, they worry that the budget fights in Washington will persist for much of 2013 and drag on economic growth.

Twenty-three of the 37 economists who responded to the survey last week say the paralysis in Washington is a significant factor in slowing the economy. The next-biggest factors they cite, in order: too little job growth, excessive government regulation and taxes, stagnant wages and cautious bank lending. Only eight say they worry about consumers saving more and spending less.

The budget impasse that will set off $85 billion in spending cuts starting Friday will shave an estimated half-percentage point from economic growth this year.

It will be followed by other key deadlines: Much of the government will shut down March 27 without new legislation to authorize spending. Congress must also agree to raise the government’s borrowing limit in May or the government will risk defaulting on its debt.