* United States staggers into another fiscal crisis
* Government agencies to cut $85 billion in spending
* Furlough notices for federal employees issued
* Possible disruption to air travel, food safety
By Richard Cowan and Alistair Bell
WASHINGTON, March 1 President Barack Obama
formally ordered broad cuts in U.S. government spending on
Friday night after he and congressional Republicans failed to
reach a deal to avert automatic reductions that could dampen
economic growth and curb military readiness.
As the United States staggered into another fiscal crisis,
the White House predicted that the spending cuts triggered by
the inability of Obama and lawmakers to forge a broader
deficit-reduction agreement would be "deeply destructive" to the
nation's economic and national security.
"Not everyone will feel the pain of these cuts right away.
The pain though will be real. Beginning this week, many
middle-class families will have their lives disrupted in
significant ways," Obama told journalists after his meeting with
Republican and Democratic congressional leaders.
Late on Friday, Obama signed an order that put in effect the
across-the-board government spending cuts known as
"sequestration." Government agencies will now begin to hack a
total of $85 billion from their budgets between Saturday and
Half of the cuts will fall on the Pentagon. Defense
Secretary Chuck Hagel said the reductions put at risk "all of
Congress and Obama could still halt the cuts in the weeks to
come, but neither side has expressed any confidence they will do
so. Both Democrats and Republicans set the automatic cuts in
motion during feverish deficit-reduction efforts in August 2011.
MARKETS SHRUG OFF CRISIS
Friday's events marked the first budget showdown in
Washington of many in the past decade that was not somehow
resolved at the last minute - often under pressure from rattled
financial markets. Markets in New York shrugged off the
stalemate in Washington on Friday as they have for months.
Democrats predicted the cuts could soon cause air-traffic
delays, meat shortages as food safety inspections slow down,
losses to thousands of federal contractors and damage to local
economies across the country, particularly in the hardest-hit
regions around military installations.
At the heart of Washington's persistent fiscal crises is
disagreement over how to slash the budget deficit and the $16
trillion national debt, bloated over the years by wars in Iraq
and Afghanistan and government stimulus for the ailing economy.
Obama wants to close the fiscal gap with spending cuts and
tax hikes. Republicans do not want to concede again on taxes
after doing so in negotiations over the "fiscal cliff" at the
Public outrage, if it materializes, would be the most likely
prod for a resolution as the impact of the spending cuts starts
to be felt in the coming weeks and months.
As a percentage of total government spending every year,
$3.7 trillion, the actual spending reductions are small. But
because safety-net programs such as Social Security and Medicare
will be untouched, the brunt falls mostly on federal government
employees rather than direct recipients of aid.
The U.S. government is the nation's largest employer, with a
workforce of roughly 2.7 million civilians spread across the
country. If the cuts stay in place, more than 800,000 of those
workers could see reduced work days and smaller paychecks
between now and September.
Furlough notices warning employees and their unions started
to go out earlier this week and the pace picked up on Friday
after it became clear that talks at the White House between
Obama and congressional leaders would be fruitless.
While the International Monetary Fund warned that the
belt-tightening could slow U.S. economic growth by at least 0.5
of a percentage point this year, that is not a huge drag on an
economy that is picking up steam.
'THE SPENDING PROBLEM'
Many Republicans accuse the Obama administration of
overstating the effects of the cuts in order to pressure them
into agreeing to a solution to the White House's liking.
A deal proved elusive as Obama met at the White House with
House of Representatives Speaker John Boehner, the top
Republican in Congress, and Senate Republican leader Mitch
McConnell, as well as the top two Democrats in Congress, Senate
Majority Leader Harry Reid and House Democratic leader Nancy
"The discussion about revenue, in my view, is over. It's
about taking on the spending problem," Boehner said after the
Asked why he did not just refuse to let congressional
leaders leave the room until they had a deal, Obama told
reporters: "I am not a dictator. I'm the president. So,
ultimately, if Mitch McConnell or John Boehner say, 'We need to
go to catch a plane,' I can't have Secret Service block the
The across-the-board cutbacks were mandated by a deficit
reduction law, structured to be so disruptive that Congress
would ultimately replace them with more targeted savings. But
partisan gridlock has prevented agreement on where to save.
The White House budget office sent a report to Congress
detailing the spending cuts. Some 115,000 employees of the
Department of Justice - including prosecutors and the FBI - were
among the first to get the official word of furloughs.
The government also sent letters to several state governors
advising them of cuts to services like the Head Start education
program in California and military facilities in Virginia.
Canadian Finance Minister Jim Flaherty expressed rare public
frustration with the United States for lurching from crisis to
One reason for the inaction in Washington is that both
parties still hope the other will either be blamed by voters for
the cuts or cave in before the worst effects predicted by
Democrats come into effect.
A Reuters/Ipsos poll released on Friday showed 28 percent of
Americans blamed congressional Republicans for the sequestration
mess, 18 percent thought Obama was responsible and 4 percent
blamed congressional Democrats. Thirty-seven percent blamed them
all, according the online poll.
The non-partisan Congressional Budget Office predicts
750,000 jobs could be lost in 2013, and federal employees
throughout the country are looking to trim their own costs.
"The kids won't go to the dentist, the kids might not go to
the doctor, we won't be spending money in local restaurants,
local movie theaters," said Paul O'Connor, president of the
Metal Trades Council, which represents 2,500 workers at the
Portsmouth Naval Shipyard in Kittery, Maine.
After weeks of White House warnings about the cuts causing
disruption, Obama acknowledged it might be a while before
effects fully kicked in. "We will get through this. This is not
going to be an apocalypse," Obama said.
In the absence of any deal at all, the Pentagon will be
forced to slice 13 percent of its budget between now and Sept.
In his first Pentagon news conference since he was sworn in
on Wednesday, Hagel struck a more moderate tone than many other
defense officials who have said the spending reductions would be
devastating or could turn the U.S. military into a second-rate
"America ... has the best fighting force, the most capable
fighting force, the most powerful fighting force in the world,"
he said. "The management of this institution, starting with the
Joint Chiefs, are not going to allow this capacity to erode."
Most non-defense programs, from NASA space exploration to
federally backed education and law enforcement, face a 9 percent
Moving to head off a new budget crisis later this month,
Boehner said the Republican-led House would move a "continuing
resolution" to fund government through the rest of the fiscal
year, thus hopefully averting a government shutdown.