No Deal on Fiscal Cliff as Obama Goes on Holiday

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Barack Obama left Washington with his family for a Christmas break in Hawaii on Friday night, an acknowledgment that weeks of negotiation over the economy's looming crisis had ground to a halt.

If there was any sign of a deal, Obama would have delayed his holiday. His departure comes after the debacle in the House of Representatives on Thursday when the Republican Speaker John Boehner was humiliated by his own members, who rebelled against his proposed plan.

Boehner signalled on Friday he was not planning to quit as Speaker but he has been left wounded.

The debacle brought closer the prospect of the country falling over the "fiscal cliff" on 1 January, with all taxpayers facing a rise and automatic cuts in federal spending, from defence to welfare, kicking in.

The House left for holidays on Thursday night and the Senate on Friday. Obama's holiday has been an on-off affair. With the election behind him, he had scheduled a long break, beginning on Friday, but last week the White House indicated he was unlikely to leave until the crisis had been resolved.

The White House on Friday announced that there had been another change and he was leaving after all.

In a statement, Obama suggested he would be back in Washington next week, much earlier than he had planned and expressed optimism that a deal could still be reached before the new year.

"So, as we leave town for a few days to be with our families for the holidays, I hope it gives everybody some perspective. Everybody can cool off; everybody can drink some eggnog, have some Christmas cookies, sing some Christmas carols, enjoy the company of loved ones," he said.

"And then I'd ask every member of Congress while they're back home to think about that. Think about the obligations we have to the people who sent us here. Think about the hardship that so many Americans will endure if Congress does nothing at all."

He added: "We just have to do the right thing. So call me a hopeless optimist but I actually still think we can get it done. And with that, I want to wish every American a merry Christmas. And because we didn't get this done, I will see you next week."

Fears that the negotiations would fail sent stock markets reeling and oil prices dropping on Friday as investors feared the political deadlock in Washington would drag down global growth.

Boehner summed up the mood in Washington. "How we get there [to a deal]? God only knows," he said.

The stall in any deal led to a sell-off on US stock markets, with the Dow industrial average falling more than 120 points.

Jack Ablin, the chief investment officer at BMO Harris bank, said the sell-offs would continue until a deal emerged. "Every day that there isn't an agreement will be a drag on the economy," he said.

Oil prices dropped, with Brent crude falling more than $1 a barrel to $109. But the dollar rallied, along with US government bonds, as investors shifted funds into perceived safe havens.

Richard Griffiths, associate director of Berkeley Futures, said: "The market just stopped in its tracks after that unexpected announcement. But it's showing resilience. It's not down by that much and people think it's just a delay before they reach a deal in maybe three weeks' time."

Powered by article was written by Ewen MacAskill in Washington and Dominic Rushe in New York, for The Guardian on Saturday 22nd December 2012 01.51 Europe/London © Guardian News and Media Limited 2010


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