US President Barack Obama has cut short his holiday in a bid to reach a deal to avoid the so-called “fiscal cliff” which could see the US tip back into recession.
The BBC reports President Obama has cut short his holiday in Hawaii to fly to Washington and resume talks with Republican leaders to negotiate a deal. No new date has been announced for the talks at this stage.
Ahead of the negotiations, the US Treasury has issued an open letter it sent yesterday to the Democrat US Senate majority leader Harry Reid which set out “extraordinary measures” the Treasury is taking to buy more time to stop the US hitting its legal borrowing limit.
Treasury secretary Timothy Geithner said the Treasury will use accounting measures to free up around $200bn (£123.7bn) to prevent the US government from hitting its $16.4trn borrowing limit, or “debt ceiling”.
Geithner said this would have given the US government an extra two months leeway “under normal circumstances”, but added “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”.
The threat of the “fiscal cliff” was brought about after the US ran up against the debt ceiling in the summer of 2011, when Obama negotiated an increase to the limit to $16.4trn to $14.3bn.
The deal meant a $600bn rise in taxes and spending cuts due to come into a force on 1 January, 2013.
Republicans and Democrats agreed the deal on the assumption that an alternative solution would be reached to cut the deficit.