Belfast Telegraph

Stock markets rally as 11th hour Congress deal averts US 'fiscal cliff'

A last-minute deal to avoid the US "fiscal cliff" has sent world stock markets soaring but has still not solved the country's massive budget deficit.

The FTSE 100 passed the 6,000 barrier for the first time since July 2011 while the Dow Jones industrial average jumped 1.8%.

A smiling President Barack Obama (below) said he would sign the law "that raises taxes on the wealthiest 2% of Americans while preventing tax hikes that could have sent the economy back into recession".

Then he left for Hawaii to resume his holiday.

The deal that squeezed through a sharply divided US Congress keeps income taxes from rising on the middle class and the poor, but it puts off major decisions on more than $100bn (£61bn) in defence and domestic spending cuts.

Congress also will have to act as early as February on raising the $16.4 trillion (£10 trillion) federal borrowing limit, which will allow the country to pay its bills.

"If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic - far worse than the impact of a fiscal cliff," Mr Obama said.

That means more potential drama ahead for those who have marvelled at the inability of US leaders to address chronic deficit spending.

Mr Obama warned that he will "not have another debate with this Congress" on the debt ceiling. The makeup of Congress changes tomorrow, when dozens of new members are seated.

If the fiscal deal had not been reached by then, the new Congress would have had to start over, and Americans would have faced automatic spending cuts and tax increases of more than £500bn in 2013 alone.

The fiscal cliff, with its January 1 deadline, was put in place in 2011 as motivation for the Obama administration and Congress to find ways to reduce the deficit.

The deal passed a final hurdle when the House of Representatives passed it, despite loud protests from conservative Republicans who hate the idea of raising taxes.

They wanted to see more spending cuts in the agreement.

"I'm embarrassed for this generation. Future generations deserve better," said one Republican opponent Louie Gohmert.

The deal put off the issue of spending cuts.

Moments after the vote, Mr Obama strode into the White House briefing room and claimed a victory.

Some liberal Democrats criticised Mr Obama for not sticking to a harder line in negotiations, considering that he no longer faces re-election.

The bill tackles the most sensitive issue, higher taxes.

It would boost the top 35% income tax rate to 39.6% for households on more than $450,000 a year, while continuing decade-old income tax cuts for everyone else.

The measure would raise taxes but is not balanced enough to shrink the federal deficit.

Scores of Republicans voted for the measure, reversing a quarter-century of solid opposition by their party to raising any tax rates at all. Republicans, who control the House, voted against the measure by a 151-85 margin, but Democrats in the House voted 172-16 for the agreement.