US lawmakers have narrowly avoided a fiscal calamity of their own making with the last-minute approval of a budget deal that lifts taxes for the vast majority of Americans but leaves the messy negotiations of spending cuts and the recently-breached debt ceiling unresolved.
The late-night decision by Congress to approve an earlier Senate bill which would lift tax rates for wealthier Americans while making permanent tax cuts first crafted during the first administration of George W. Bush has avoided, for the moment, the automatic triggering of $110bn (£67bn; €83bn) in spending cuts in the still-fragile US economy. Those cuts - known to lawmakers as "sequestering" - have been delayed for at least two months to allow the next Congress to debate how they will be managed or changed. However, with the US now in technical breach of its legally mandated debt ceiling, the outcome of those negotiations will likely have more influence on US economic growth than the temporary deal which has lifted markets all over the world.
"I will not have another debate with this Congress over whether or not they should pay the bills that they've already racked up," President Barack Obama said in a brief address to the media following last night's vote. "If Congress refuses to give the US government the ability to repay these bills on time, the consequences for the global economy would be catastrophic - far worse than a fiscal cliff."
Republican House Speaker John Boehner, however, set out his party's objectives in the looming debate in a statement immediately following passage of the Senate bill: "Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble."
US Treasury Secretary Tim Geithner wrote a letter to Congress on 31 December, outlining a series of measures he will need to take over the coming two months in order to continue funding the government's current account and budget deficits now that the $16.4tn debt ceiling has been legally exceeded.
The two deadlines are inexorably connected due to the fact that "sequestering" was put in place during the intensely partisan debate over the debt ceiling when it was last breached - for the 106th time since 1940 - in the summer of 2011. Lawmakers created the automatic programme of cuts, which would effectively reduce the annual budgets of most government agencies by around 10 percent, as a way in which to compel them to reach an agreement that would have a far less devastating impact on the economy.
However, having failed to broker a compromise on the nature of spending cuts, the shifting burden of tax increases or the size of overall deficit reduction, Congress is now left with a two-month window during which it will need to either lift the borrowing limit once again or risk both a technical default of some of its government securities and a downgrade of one of its two remaining AAA debt grades. Standard & Poor's lowered its top rating for US debt in August 2011 amid the 11th hour negotiations that narrowly avoided technical default but roiled markets around the world and stiffened the partisan resolve of both sides of the House of Representatives.
The current delay will cost the government around $24bn, according to Congressional Budget Office figures, and will be paid for by a combination of US Defence Department spending cuts and a complicated tax change in some private retirement accounts. The agreed extension of tax breaks and jobless benefits will add around $330bn to the US deficit this year and likely increase US Treasury bond issuance to just over $1tn in the next government financial year.
Given that both sides have walked away from last night's agreement unhappy - the President wanted tax increases to begin at the $250,000 income threshold but settled for $450,000; Republicans wanted no tax increases of any kind but had to conceded to raising them by $620bn - it's safe to say that the search for compromise on deficit reduction will be difficult, if not impossible, even with the debt ceiling's 28 February deadline looming ominously in the background.