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Latest update: 02/08/2011
- Democrats (USA) - financial crisis - Republicans (USA) - USA
Republicans, Democrats agree on ‘short-term’ debt deal
By narrowly escaping an unprecedented US default, the last-minute debt deal struck by Republicans and Democrats Sunday came as a welcome relief to markets, although critics say it is a short-term solution in place of more "coherent" reforms.
President Obama announced a deal with congressional leaders late Sunday allowing the US to raise its debt ceiling, subsequently avoiding a default which would have had a “devastating effect” on the country’s economy and certain global consequences.
The deal will authorise an increase in the debt limit of at least $2.1 trillion, enough to tide the Treasury over past the 2012 elections. It steers the country clear of defaulting on a number of crucial payments, including Social Security pension checks, military veterans’ benefits and payments to businesses that do work for the government.
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The deal requires support from two-thirds of both the House of Representatives and Senate, which are to vote on Monday. It is widely expected to be passed, although right-wing Tea Party members, who have been set against the idea from day one, will likely use the opportunity for a further gripe with a collective “no” vote.
A deal which pleases nobody
On the other end of the scale, Democrats are no more enthralled by the plan. “Is this the deal I would have preferred?” Obama asked at Sunday’s press conference. “No”. Obama had unsuccessfully lobbied to include tax increases in the deal. He commended Republican and Democrat leaders nonetheless, for reaching a last-minute agreement, after months of bickering.
“[This deal] will end the crisis that Washington imposed on the rest of America,” he told reporters at the White House late Sunday. “And it will allow us to lift a cloud of doubt and uncertainty.”
Senate Republican leader Mitch McConnell also praised the agreement, speaking of “assuring the American people” of not defaulting on obligations “for the first time in history”, despite a stubborn campaign from his own party which saw negotiations strung out into the eleventh hour.
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Just over a year away from the US presidential election, the debate has proved exasperating for the electorate too. “Now the debate is over, there’s a sense of ‘much ado about nothing’,” Crowther said. “I don't think people were seriously worried about default. They were more frustrated about the entire political debate being taken over by what is largely an abstract issue, while the big issues, like employment, were being ignored.”
Short-term solution
The news came just in time to boost Asian stock markets on Monday morning, as investors around the world heaved a sigh of relief. But the plan has failed to impress ratings agencies, with Standard and Poor (S&P) warning that it may still downgrade the US’s triple star credit rating.
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PIMCO, the world's biggest bond fund and the largest holder of US bonds, dismissed the plan as a short-term solution. CEO Mohamed El-Erian told ABC News: “This relief will be short. (…) It will not remove the threat of a downgrade, it does nothing to restore household or corporate confidence, so unemployment will be higher than it would have been otherwise, growth will be lower, and inequality worse.”
He urged for a “more coherent fiscal reform” and “additional measures to remove structural impediments to growth and jobs”.
The deal will see the creation of a new congressional committee that will have until November to recommend $1.5 trillion or more in deficit cuts, targeting programmes such as Medicare, Medicaid and Social Security.
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Comments (1)
US "Deal"
I'm over here in the US. I'm not sure if you guys believe the claims encompassed in the "deal", but we don't. A "cut" is not a cut, these programs continue to grow. We have things that are off-budget, more things will move into that hidden area. We have become a welfare state, and the last thing you'll get in that environment is frugality. My real gripe is the constant drumbeat that our credit rating will fall if we don't take on even more debt that we cannot afford. If that's really the assessment of our foreign lenders, then all I can say to them is, you asked for it suckers!
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