Obama returns to work as 'fiscal cliff' looms

Challenges to the US president's second term include a struggling economy on the verge of a $600bn crisis.

    US President Barack Obama faced urgent economic challenges, a looming fiscal showdown and a divided Congress capable of blocking his signature legislative measures as he returned to the White House after his re-election.

    The Democrat president flew back from Chicago, his hometown and site of his campaign headquarters, on Air Force One on Wednesday, accompanied by his wife Michelle and two daughters.

    Despite an easy win over Republican Mitt Romney in Tuesday's poll, Obama must navigate a Republican-led House of Representatives to try to overcome the partisan gridlock that gripped Washington for much of his first term.

    His most immediate concern is the "fiscal cliff" - a mix of tax increases and spending cuts - that could crush the US economic recovery if it kicks in at the start of next year.

    The prospect of Obama and Congress struggling to agree on the issue weighed heavily on global financial markets on Wednesday and helped send Wall Street stocks into a post-election freefall.

    Voters gave Obama a second chance despite high unemployment and a weak economic recovery, but they preserved the status quo of divided government in Washington.

    Obama's fellow Democrats retained control of the Senate and Republicans kept their majority in the House, giving them power to curb the president's legislative ambitions on everything from taxes to immigration reform.

    The problems that dogged Obama in his first term still confront him. He must tackle the $1 trillion annual deficits, rein in the $16 trillion national debt and overhaul expensive social programmes.

    'Number-one item'

    The most urgent focus for Obama and US legislators will be to deal with the fiscal cliff due to extract some $600bn from the economy starting early next year, barring a deal with Congress.

    Al Jazeera's Daniel Lak, reporting from Washington, said "It can't really be overstated how serious this is."

    Daniel Lak reports from Washington

    "It's going to affect this country, it's also going to affect countries around the world. G8 finance ministers have been talking about how serious this is, and hoping that [White House officials] can reach a deal with Congress.

    "[This] is the number-one item in his in-tray, but he's already reaching out to Congress, calling congressional leaders, and seeing if they can get started on the type of substantive negotiations that might see this thing settled."

    Obama has pledged to increase tax rates on Americans earning more than $250,000 as a part of his "balanced approach" to deficit reduction - something Republicans still pledge to resist.

    "That's one of the reasons the fiscal cliff exists," said Lak. "The White House wasn't able to negotiate with the House of Representatives' Republican majority any sort of compromise regarding tax cuts and government spending.

    "The Republicans want to rein in Medicare spending and other entitlements, and they really don't want any taxes to be raised. President Obama has said perhaps some taxes may have to be raised, especially on the very wealthiest."

    Economists fear driving off the fiscal cliff would cause two million people to lose their jobs, raising unemployment to nine per cent.

    Markets fall

    Post-election concern about US fiscal problems contributed to a fall in global financial markets as investors scrambled for safe-seeming assets.

    All three major US stock indexes fell more than two per cent, with the Dow Jones industrial average losing more than 300 points and the S&P 500 posting its biggest drop since June.

    Obama also faces challenges abroad including the West's nuclear standoff with Iran, the civil war in Syria, the winding down of the war in Afghanistan and dealing with an increasingly assertive China.

    Romney, a multi-millionaire former private equity executive, came back from a series of campaign stumbles to fight a close battle after besting Obama in the first of three presidential debates.

    But the former Massachusetts governor failed to convince voters of his argument that his business experience made him the best candidate to repair a weak Us economy.

    The president rolled to a second term over Romney, winning more than 300 electoral votes although he was only winning the national popular vote by a 50 percent to 49 percent margin.

    SOURCE: Al Jazeera And Agencies


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