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