Has US debt crisis boosted Obama’s re-election hopes?

Barack Obama

First reaction: America set to avoid debt default with new deal, but who are the winners and losers?

BY Ben Riley-Smith LAST UPDATED AT 11:58 ON Tue 2 Aug 2011

A deal to raise the US debt ceiling has been passed by the House of Representatives and is expected to be approved by the Senate later today, pulling America back from the brink of defaulting on its debts.

But few people are celebrating in Washington DC. Nancy Pelosi, the leader of Democrats in the House, called the deal "a Satan sandwich with Satan fries on the side". Her Republican colleagues appeared equally unimpressed with the compromise. Indeed, the only cheer of the day came when Gabrielle Giffords, the Congresswoman shot in the head back in January, returned to the floor for the first time since the incident.

The immediate crisis may have been averted, but serious questions remain about the longer term impact – both economic and political – of a turbulent week on Capitol Hill.

Obama has been diminished. "Let's be quite clear about this," writes Mark Mardell, the BBC's North America editor. "The only victories for Mr Obama are the bullets he has managed to dodge. He has been forced to accept deep cuts which run counter to all his plans and which his party hates."

The Telegraph's Michael Barone agrees. "In the negotiations that produced the bill the 44th president of the United States seemed to be more of an onlooker than a participant," he said. "Obama promised to unite the country. Instead he has united the opposition, antagonised the centre and demoralised his base."

The Tea Party has shown its true colours. Polly Toynbee, the Guardian columnist, was in no doubt where the blame lies. "Tea Party madness has brought the US to the brink of economic mayhem, risking taking much of the world with it," she said. "Facts, evidence, probability, possibility – none of that matters to a movement founded on ferocious fantasy."

"The politics of miasma, where words matter more than facts and actions, lets the Tea Party demand the impossible – debt reduction with tax cuts, spending cuts without touching the gargantuan defence budget," Toynbee continued. "Obama believed against all the evidence that his opponents would see reason. That's not who they are."

America's role in the world is being recast. A leader in the Times calls the deal an "unsatisfactory compromise", whose failure to solve the American economy's structural issues could have serious consequences. "America's international authority depends on its wealth and ability to sustain diplomatic, financial and military roles," it noted. "The indispensable nation's status has been redrawn by the unavoidable burden of debt."

Bill Emmott, also writing in the Times, has a more basic fear:
withdrawal. "When the global financial crisis broke in 2008, many worried that it would produce a wave of protectionism," he said. "Yet the rise of the Tea Party suggests that the real threat is isolationism, which may in time produce trade and financial protection too."

He says wrangling in Washington up to the 2012 presidential election "obscures not just the fiscal future of the country but also the future of its relationship and attitude to the outside world".

Have the Republicans been fatally undermined? According to the Telegraph's Tim Stanley, the Republicans' "high-risk strategy" may have reframed the political debate unfavourably. "The brinkmanship of the debt-ceiling talks has created a new narrative in American politics. In the popular mind, it has turned Obama from a liberal into a moderate, and the Republicans from free-market rationalists into economic vandals."

Stanley continued: "The deficit crisis has given us a vision of what the 2012 battle will come down to: Obama the centrist versus a Republican candidate beholden to a Tea Party crusade with minority demographic appeal." · 

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