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hey were both badly bruised, but US President Barack Obama came off worse in his latest political duel with the Republicans as they gear up for the 2012 elections in the United States.

Many of the President’s supporters were dismayed that he should cave in to the Republican Party demands to cut back on social spending as he and Congress struck a deal on Sunday to raise the debt ceiling of the federal government.

At a time when the economy is still struggling to get off the ground three years after its worst economic recession in seven decades, this deal may represent another blow for Obama in the lead-up to his 2012 reelection campaign.

His constituents on the left of the Democratic Party feel betrayed that he conceded yet another defeat to the Republicans that control the House of Representatives, but by striking the deal with Congress, Obama may have actually strengthened his hold of the middle ground while the Republican Party is moving further away from the center to the right of the US political spectrum.

Time will tell if this was a strategic defeat or whether Obama has really lost control of the direction of the US economy.

Ever since the Republicans routed the Democrats in the November 2010 elections on the back of a very conservative Tea Party agenda, and seized control of the House, they have forced Obama not only to back off from his plan to increase taxes on the wealthy and large corporations, but also to commit himself to huge cutbacks on spending.

The debt ceiling debate shows Washington politics at its worst and best.

While there was never any doubt that Obama and the Republican-controlled House would allow the government to default on its financial obligations, which was a likely prospect in the absence of a deal to raise the debt ceiling, their brinkmanship has polarized Washington so much to anger most Americans in the middle and to cause jitters on Wall Street and the global financial markets.

In the best of traditional Washington politics, the two sides did come to a compromise in the end, through a bipartisan deal worked out largely by senior politicians in the Senate.

A failure to increase the debt ceiling would have been a catastrophe, not only to the United States, but also to the global economy. Short of cash, the US government would have defaulted on some of its payments.

Think of the 80 million checks the federal government sends each month for the salaries of civil servants, military personnel, pensioners, to pay for healthcare costs, contractors and interest on government debts. In the event of a default, international ratings agencies would have immediately downgraded the credit-worthiness of the world’s largest economy and therefore of the US dollar, creating huge ripples throughout the rest of the world.

The US economy, however, was not the one at stake here, at least as far as Obama and the Republi-cans were concerned. Instead, the economy was the wager both sides were using for what is to them the biggest prize of all: the 2012 elections.

Obama is doing everything he can to get reelected, and the Republicans are similarly vigorous in their moves to deny him a second term. The economy, and economic policies, will be key issues in both parties’ campaigns.

Raising the debt ceiling was not so much the real issue in the debate as how to get there. The government had to obtain Congress permission to borrow beyond the previous US$14.3 trillion ceiling, and the Republicans seized the opportunity to impose their conservative agenda on the Obama administration.

In the final deal, which increased the debt ceiling by $2.4 trillion, the government must commit to reducing its budget deficit by an almost equal amount over the next 10 years. This reduction would come entirely from spending cuts, with not a cent from additional revenue. Obama cannot turn to taxpayers to plug the budget deficit.

Instead, the administration will have to slash spending on social programs, and quite possibly defense programs.

Obama’s only claim to victory from the deal is that the debt ceiling has been raised high enough to take the administration to 2013, sparing him from having to fight another battle with Republicans over the same issue six months down the road when he needs to focus on his reelection campaign.

As with most past US presidents bidding for a second term in office, how the economy performs will likely determine Obama’s political fate in 2012.

The bad news for Obama is that it has been almost all bad news this year, with economy barely picking up and the unemployment rate remaining at a high 9.2 percent. The good news for him is that he can now find a convenient scapegoat if the economy continues to perform poorly.

With the Republicans increasingly micromanaging federal government spending by using their clout in the House, Obama will happily share the blame with them for everything that goes wrong with the economy.

But if the economy improves in the coming months, he will claim all the credit, clearing the coast for him to remain in the White House until 2016.

It’s the economy, stupid, all over again. But who is the stupid one here? We’ll know in 2012.

The writer is a senior editor of The Jakarta Post and visiting fellow of the East-West Center in Washington.