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America's debt crisis -

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Growing debt in the United States is creating a large problem for the President and Democrats and
proving to be a political challenge for Republicans.


HEATHER EWART, PRESENTER: In the United States the political standoff over the country's ballooning
debt is becoming more complex. Flush with confidence after their victory at last year's mid-term
elections, Republicans in the US Congress are pushing for bigger cuts to the budget than the
President has proposed. Unless a compromise can be reached soon, there's a danger the Government
will be forced to shut down. The fight is a headache for the President and for the Democrats, but
it's also proving to be a big challenge for Republicans. North America correspondent Michael
Brissenden reports.

MICHAEL BRISSENDEN, REPORTER: At every level of government in America today, there is one crushing
central issue: money - or rather, the lack of it.

In the State of Wisconsin, the Republican governor is fighting public sector unions over plans for
big cuts to benefits, services and health care. Democratic senators have fled the state to avoid a
quorum that would put the cuts into law.

From local councils to state governments and of course all the way to Washington, debt has become
the big ideological faultline.

JOHN BOEHNER, SPEAKER: In other words, we're broke. Broke going on bankrupt, and just as a bankrupt
businesses has trouble creating jobs, so does a bankrupt country.

BARACK OBAMA, US PRESIDENT: We need a balanced approach to deficit reduction. We all need to be
willing to sacrifice, but we can't sacrifice our future.

MICHAEL BRISSENDEN: Both sides recognise the public is concerned about a deficit now measured in
trillions. But the fight as always is over how much and what to cut. The President has proposed a
budget with cuts of $17 billion. The Republicans, who now control the House of Representatives,
want $61 billion worth of cuts.

NORMAN ORNSTEIN, AMERICAN ENTERPRISE INSTITUTE: While the battles now are presumably over trying to
deal with burgeoning deficits and debt, it's really over very different visions of what role
governments should play. And that brings out some of the toughest partisan and ideological

MICHAEL BRISSENDEN: And although Congress is expected to pass a continuing resolution, or "CR", as
it's known, to keep things running for another few weeks, the budget standoff remains.

MITCH MCCONNELL, SENATE MINORITY LEADER: We've added $3 trillion to the debt in the last - since
the beginning of the Obama administration while we've lost three million jobs. I think you could
argue pretty persuasively that's the worst way to run the government.

HARRY REID, SENATE MAJORITY LEADER: The only message that we have from the Republicans is to wipe
out programs that are so important to people, especially people who can't help themselves.

MICHAEL BRISSENDEN: If it's not resolved, the Government will be forced to shut down completely.

NORMAN ORNSTEIN: A third of the Republican majority in the House is new this year. Almost all of
them were backed by the Tea Party; even those who weren't don't want to alienate those people. So
they can't settle for 25 cents on the dollar when it comes to the budget cuts that they've
promised, but if they ask for something more, then they're likely to see a shutdown occur.

MICHAEL BRISSENDEN: And it wouldn't be the first time. In 1995, the Clinton administration faced
the same problems with a newly hostile Congress.

BILL CLINTON, THEN US PRESEIDENT (archive footage, 1995): It is wrong for the Congress to shut the
Government down just to make a political point.

NEWT GINGRICH, SPEAKER (archive footage, 1995): For us to walk off now and take a vacation, giving
up on balancing the budget, I think would be a tragedy that would haunt us for the rest of our

MICHAEL BRISSENDEN: In 1995, the Republicans, led by Newt Gingrich, did close the Government down,
but the public backlash was severe. It was a political setback for them and it helped revive the
Clinton administration.

MARTIN FROST, FORMER DEMOCRAT MEMBER: Some of the Republicans who are in the Congress now weren't
in Congress at that time. In fact, quite a few of them weren't, although the new Speaker, John
Boehner, was a member of Congress, so he's seen this movie before; he knows what happens.

MICHAEL BRISSENDEN: Martin Frost retired from Congress in 2005, but in 1995 he'd already been there
for 16 years and he was about to become chair of the Democratic Congressional Campaign Committee.
The Gingrich shutdown certainly helped his planning for the 1996 election that delivered Clinton a
second term. And he says everyone is approaching this budget crisis with one eye firmly fixed on
the past.

MARTIN FROST: Oh, I think they know that it was trouble for them, the Republicans, and they know
they have to be more careful this time.

MICHAEL BRISSENDEN: But cautious or not, long-time political observers like Norman Ornstein from
the conservative American Enterprise Institute believes this standoff is as much a challenge for
the Republicans as it is for Obama and the Democrats.

NORMAN ORNSTEIN: I think the new members need a shutdown, even if it's a short one, so that they
can go back home and say, "Look, we pushed it. That was as far as we could get right now." And that
complicates matters for Speaker Boehner and his colleagues.

MICHAEL BRISSENDEN: In fact the Tea Party success has been a double-edged sword for the
Republicans, hasn't it?

NORMAN ORNSTEIN: Well, you know, when you encourage a rabid Rottweiler and it gives you victory,
you can feel good for a while, but after a while that Rottweiler can turn on you. And I'm afraid
one of the problems that the Republicans have is they used some extreme rhetoric and some unlikely
promises to get this group of people really charged up and it helped them move into a majority. Now
they have to deliver on things that are not realistic or they may get devoured themselves.

MICHAEL BRISSENDEN: But whatever happens, this skirmish is just a warm up for an even bigger one to
come. Some time in April, the US will reach its debt ceiling and Congress will have to vote to
extend it. The consequences of a protracted battle over that one could be a lot more serious than
just shutting down the Government.

The debt ceiling is the amount of money Congress says the nation can legally borrow. It now sits at
$14.3 trillion, but if it's not extended, many fear the US simply won't be able to pay its bills or
service its debt.

MARTIN FROST: This is somewhat unpredictable. It's potentially a graver situation than occurred in
1995, because 1995, everyone knew that eventually they would pass a CR and that these government
employees were gonna be brought back to work and they would be paid their back wages, which was
exactly what would happen now. But it wasn't a question of the United States defaulting on its

HEATHER EWART: Michael Brissenden reporting from Washington.