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Congress votes on raising debt limit to avert default

Text by FRANCE 24

Latest update : 2011-08-01

The US Senate and House of Representatives prepared to vote Monday on a White House-backed deal to raise the $14.3 trillion debt ceiling, just one day before a deadline for avoiding an unprecedented US default.

The US Senate and the House of Representatives prepared to vote Monday on a White House-backed deal to raise the $14.3 trillion debt ceiling after months of intense wrangling and just a day before the August 2 deadline for avoiding an unprecedented US default.

President Barack Obama announced a deal with congressional leaders late on Sunday that would allow the US to raise its borrowing limit, thereby avoiding a default that would have had devastating consequences for the country’s economy and a ripple effect on global markets.

The deal would 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.
 
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 that 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. Nonetheless, he commended Republican and Democrat leaders 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.
 
FRANCE 24 correspondent Philip Crowther described a sense of relief in Washington, but one that is tainted with frustration over a deal that pleases nobody. “No one is coming across as a winner of this drawn-out political affair,” he said. “This has been a hugely damaging episode for the government and the US political system as a whole.”
 
Just more than a year before 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.
 
PIMCO, the world's biggest bond fund and the largest holder of US bonds, dismissed the
Major holders of US debt
© Chart courtesy AFP
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.

FOLLOW THE US DEBT IN REAL TIME

 

Date created : 2011-08-01

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