US President Joe Biden and US House of Representatives Speaker Kevin McCarthy on Saturday announced a deal to raise the debt ceiling, dragging the US back from the precipice of default with only a few days to spare.
The US Congress is to vote on the deal to extend the government’s borrowing authority on Wednesday, just shy of the “X-date” on Monday next week when the US Department of the Treasury estimates the government would no longer be able to pay its bills, plunging the world’s biggest economy into turmoil.
Biden said in a statement that the deal was “good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated and millions of jobs lost.”
Photo: EPA-EFE
McCarthy, who spoke with Biden on Saturday to close the deal, said there was still “a lot of work to do, but I believe this is an agreement in principle that’s worthy of the American people.”
The Republican speaker added he would consult again with the president yesterday and oversee final drafting of the bill.
Raising the debt ceiling — a legal maneuver that takes place most years without drama — enables the government to keep borrowing money and remain solvent.
This year, Republicans demanded deep spending cuts — largely in social spending for the poor — in return for raising the debt ceiling, saying the time had come for bitter medicine to address the country’s mammoth US$31 trillion debt.
Biden said that he would not negotiate over spending issues as a condition for raising the debt ceiling, accusing the Republicans of taking the economy hostage.
Both sides have somewhat climbed down.
According to a source familiar with the negotiations, the deal includes freeing up the debt ceiling for two years, meaning there would be no need for negotiations next year, when campaigning for the presidential election would be in full swing.
The big cuts Republicans wanted are not there, although non-defence spending would remain effectively flat next year, and only rise nominally in 2025, the source said.
There would also be new rules for accessing certain federal assistance programs, although the source said the deal protected Biden’s signature Inflation Reduction Act and student debt relief plan.
Biden said that “the agreement represents a compromise, which means not everyone gets what they want. That’s the responsibility of governing.”
US Secretary of the Treasury Janet Yellen had initially warned of a possible default around Thursday if Congress failed to raise the ceiling on borrowing, but gave lawmakers some breathing room on Friday when she updated the deadline to Monday next week.
Even so, the legislation would still have to clear Congress much faster than the normal timetable for even the most uncontroversial bills.
Under House rules, lawmakers have to be given 72 hours before voting once a bill is presented. And if it passes the House, it then has to go through the US Senate, where Democrats hold the majority.
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