US Debt Crisis to be Averted: Biden and McCarthy Reach Tentative Deal to Raise Debt Ceiling

 

US President Joe Biden and House Speaker Kevin McCarthy reached a tentative Deal
Image Credit: Google

Hamza Javed

In order to avert the catastrophic default of its economy, US President Joe Biden and House Speaker Kevin McCarthy have reached a tentative deal to raise the federal government’s $3.4 trillion debt ceiling few days before the X-Date.

The limit to increase or decrease the debt lies under the domain of US Congress. The House, currently dominated by Republicans, the opposition of US incumbent government which is led by Democrats.

There was a difference of opinions between the two parties regarding Debt Crisis. The republicans asked the government to curtail its expenditure to meet the limit while Biden Administration demanded increase in the limit with no conditions attached.

The long standoff alarmed financial markets, weighing on stocks and forcing the US to pay record-high interest rates in some bond sales. A default might have taken a far heavier toll, economists say, by likely pushing the nation into recession, shaking the world economy and leading to a spike in unemployment.

In 2011, the United States faced a similar situation when it came closer to defaulting on its debt obligations. At that time, the political landscape featured a Democratic president, a Democratic-controlled Senate, and a House of Representatives led by Republicans.

Despite the challenging circumstances, Congress managed to prevent a default from occurring.

However, the economy experienced significant shocks as a result. These shocks included the unprecedented downgrade of the US' top-tier credit rating and a substantial sell-off in the stock market.

The fresh agreement between McCarthy and Biden on Saturday would raise the debt limit for two years. This would cap spending over that time amid stumbling risks that may anger both Democrat and Republican sides with the concessions made to reach it.

Support from both parties, ruling and opposition, will be required to win congressional approval next week before the United States runs out of money to pay its debts on June 5.

Biden and McCarthy:

Biden and McCarthy reached the “agreement in principle” on Saturday after they held a 90-minute-long telephone call.

Biden stated afterwards that, “The agreement represents a compromise, which means not everyone gets what they want,” while “That’s the responsibility of governing,” he said.

He further termed the agreement “good news for the Americans" because, according to him, this will prevent what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost.

While McCarthy delivered briefly at the Capitol saying, “we still have a lot of work to do”.

But, he added, “I believe this is an agreement in principle that’s worthy of the American people.”

Now the Biden Administration is supposed to finish writing the bill on Sunday, then have a vote on the deal on Wednesday.

The Deal:

• It’s a Two-year Budget Deal

• Hold its spendings flat for 2024 and impose limits for 2025

• It will push the issue past the next presidential elections

• The agreement would also claw back unused COVID-19 funds

• Speed up the permitting process for some energy projects, and

• Include some extra work requirements for food aid programmes for poor Americans.

• For instance, it would limit food stamp eligibility for able-bodied adults up to age 54, waivers for veterans and the homeless.

• The deal aims at averting an economically catastrophic default,

However, the more it takes time to get Biden and McCarthy pass the deal by narrowly divided Congress, the chances of default will loom around.

According to the reporter Mike Hanna, who works for Al Jazeera said at Washington DC that a “long way” remained before the deal as this needed to clear:

• The House of Representatives, with a 222-213 Republican majority, and

• The Senate, with a 51-49 Democrat majority.

He further added, for majority of the conservative Republicans the deal would be too modest, while the progressive Democrats would see it as too stringent. So, it is expected that there are going to be Republicans and Democrats who rebel against the Deal.

(Courtesy: Al-Jazeera)