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Holiday's over: Obama returns to Washington to deal with 'fiscal cliff'

The US President has cut short his annual Christmas vacation in Hawaii to return to the White House in an attempt to avert the looming series of potentially devastating tax hikes and spending cuts.

Obama departs from Hawaii last night, bound for Washington
Obama departs from Hawaii last night, bound for Washington
Image: Carolyn Kaster/AP/Press Association Images

PRESIDENT BARACK OBAMA returns today to a sharply divided Washington under pressure to forge a year-end deal with Republicans to avoid the tax hikes and spending cuts of the “fiscal cliff.”

Obama cut his Hawaiian Christmas vacation short to contend with the looming January 1 crisis, as Republicans and Democrats traded blame and the White House reportedly lashed out at the “congressional stupidity” gripping the capital.

Six days earlier Obama had urged Congress to end a deadlock over how to avoid the hundreds of billions of dollars in tax hikes and spending cuts that kick in at the start of the year if Congress fails to act.

The situation has spooked US and global markets, left Americans wondering whether they will pay thousands more in taxes next year, and worried the Pentagon, which fears defence cuts could seriously undermine the military.

Complicating efforts to avoid fiscal disaster, Treasury Secretary Timothy Geithner warned that his department will need to take “extraordinary measures” to postpone the day the government could default on its liabilities.

Geithner said in a letter to Senate Majority Leader Harry Reid that the nation will reach its statutory $16.39 trillion debt limit on Monday, 31 December.

His measures would create some $200 billion in headroom that under normal circumstances would last about two months, to the end of February.

“However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” Geithner said.

Experts say a failure to strike a fiscal cliff compromise by New Year’s Eve could plunge the world’s biggest economy into recession, and wrangling over the debt ceiling will only exacerbate the uncertainty.

But members of the House and Senate have shown no signs of nearing any accord.

“The White House hasn’t reached out to us, nor have Senate (Democrats),” Don Stewart, deputy chief of staff to Republican Minority Leader Mitch McConnell, told AFP Wednesday. “They seem to be working on this on their own.”

- AFP, 2012

Last week: ‘Plan B’ to avert fiscal cliff in the US fails

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