'Problem Avoided, Not Solved,' US Averts Its First Ever Debt Default, But Only Till January 1st 2025

After facing the risk of its first ever debt default and running out of cash as soon as June 1, the US has finally breathed some relief.

The Senate passed legislation to suspend the US debt ceiling and impose restraints on government spending through the 2024 election, ending a drama that threatened a global financial crisis.

US Default Could Have Caused Stock Market Crash & Millions Of Job Losses

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Last month, the White House's economists warned of a global crisis involving a possible stock market crash and millions of job losses. The measure now goes to President Joe Biden, who forged the deal with House Speaker Kevin McCarthy and plans to sign it just days ahead of a looming US default. The White House said US President Joe Biden would address the nation on Friday evening to discuss the accord.

Joe Biden, in a statement minutes after the Senate vote, called the agreement ¡°a reminder of what¡¯s possible when we act in the best interests of our country. I look forward to signing this bill into law as soon as possible.¡±

The 63-36 vote on the bill was carried by moderates in both parties, many of whom aired their misgivings about parts of the deal but were convinced that their concerns weren¡¯t worth risking the havoc a default would unleash.

"We Will Not Default"

¡°If we do this we will not default,¡± Senate Majority Leader Chuck Schumer said just before the vote, as per Bloomberg report. ¡°That is very, very important.¡±

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Investors have largely judged the risk of a US default as resolved and are shifting attention to other uncertainties, such as Federal Reserve policy. A hard-fought compromise reached after weeks of private talks and public finger-pointing, the legislation is a rarity in a highly polarised Washington where dealmaking has become a lost art form. Getting it through the Senate Thursday night took hours of negotiations between the two parties, with independent Senator Kyrsten Sinema shuttling in designer sneakers between Republicans lunching on the second floor of the Capitol and Democrats on and off the Senate floor.

Ultimately, they settled on allowing uncharacteristically speedy votes on 11 amendments ¡ª all of which failed ¡ª and a pair of statements from Schumer aimed at soothing concerns about defence spending levels and other potential cuts. Schumer made it clear that the Senate could bypass the spending caps in the bill for Ukraine, defence, and domestic priorities using emergency funding, though the Republican-controlled House would have to concur.

Senate passage ends the worst standoff over the US debt in a dozen years. But it comes at some political cost for Biden and McCarthy, who have taken fire from lawmakers on their respective parties' flanks who insist too much was given away in the negotiations.

For Biden, the vote risks alienating well-known progressives ahead of a reelection campaign where he will rely on them to rev up enthusiasm and stump for him among critical constituencies. But the president isn¡¯t facing a serious primary challenge from the left, and the deal averts an economic upheaval heading into his reelection bid. It also strengthens his reputation for pragmatism and working across party lines.

Also Read: US May Use Its $30 Billion Unspent Covid Funds For Relief

Problem Postponed Till January 2025

The bill would set the course for federal spending for the next two years and suspend the debt ceiling until Jan. 1, 2025, thus postponing another clash over borrowing until after the presidential election. In exchange for Republican votes for the suspension, Democrats agreed to cap federal spending for the next two years. The bill also green-lights Equitrans Midstream¡¯s stalled Mountain Valley Pipeline in West Virginia.

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Spending restraints in the deal may have a big impact on young college graduates who will have to resume student loan payments and some lower-income Americans hit with benefit restrictions or service cuts, as per the report.

Also Read: 5 Rights You Must Know As A Loan Defaulter

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