There were only a few days left before the United States would have defaulted on its obligations, but President Joe Biden and Republican leader Kevin McCarthy reached a deal on Saturday to extend the debt ceiling, pulling the country back from the brink of disaster.
On Wednesday, Congress will vote on an agreement to extend the government’s borrowing authorization. This comes just a few days before the “X-date” of June 5, which is the date when the Treasury thinks the government will no longer be able to pay its obligations, throwing the economy of the largest country in the world into disarray.
In a statement, Vice President Biden hailed the agreement as “good news for the American people” because it “prevents what could have been a catastrophic default” and “would have led to an economic recession, retirement accounts being devastated, and millions of jobs being lost.” Biden was referring to the possibility that a default on the nation’s debt would have resulted to the loss of millions of jobs.
McCarthy, who called with Biden on Saturday to finalize the deal, stated that although there was still “a lot of work to do,” he believed that the agreement in principle was worthy of the people of the United States of America.
The Republican speaker of the House added that he would meet with the president once more on Sunday, oversee the final drafting of the law, and “then be voting on it on Wednesday.”
The government is able to continue borrowing money and still stay solvent if the debt ceiling is raised, which is a legal move that takes happen in the majority of years without any fanfare.
This year, Republicans requested significant cuts in spending, primarily in social spending for the poor, in exchange for extending the debt ceiling. They stated that the time had come for unpleasant medicine in order to confront the enormous $31 trillion debt that the US is currently facing.
Biden stated that he would not negotiate on budget issues as a condition for lifting the debt ceiling, and accused the Republicans of holding the economy hostage in order to achieve their political goals.
Both sides have now taken back some of their previous positions.
According to a person who is familiar with the negotiations, the agreement includes raising the debt ceiling for a period of two years. This means that there will be no need for more negotiations in the year 2024, which is when the presidential election would be in full gear.
The large cutbacks that Republicans anticipated did not materialize, but non-defense spending is expected to remain practically flat in the coming year and to only climb marginally in the following year, according to the source.
In addition, there would be new regulations for accessing specific federal assistance programs; nonetheless, the source stated that the pact preserved Biden’s flagship Inflation Reduction Act as well as the student Debt Relief Plan.
Biden stated that “the agreement represents a compromise,” which indicates that not everyone will get what it is that they want. That is the duty of those who hold political office.
Treasury Secretary Janet Yellen had already issued a warning about the possibility of a default occurring around June 1 if Congress failed to raise the limit on borrowing, but she offered lawmakers some wiggle space on Friday by moving the deadline to June 5.
In spite of this, the law will have to get through Congress in a significantly shorter amount of time than the typical amount of time required for even the least controversial bills.
Once a bill is introduced in the House, legislators are required to wait a full 72 hours before casting their vote on it. If it makes it through the House of Representatives, it must next be approved by the Senate, where the Democrats now control a majority.
McCarthy is aiming to win over the tiny House majority of 222 Republicans, but the plan is expected to meet opposition from 35 lawmakers on the far right who instructed McCarthy to “hold the line” against yielding on far more broad expenditure cuts. McCarthy has been told to “hold the line” against compromising on these kind of budget cuts. This means that a significant number of Democrats will need to be convinced to vote with a smaller number of Republicans, which is something that happens very infrequently on significant pieces of legislation.
Representative Lauren Boebert, a member of the hard-line conservative caucus, stated that she would vote against the agreement, which is an indication that McCarthy may have a difficult time corralling the support of his party.
“Our voters deserve better than this,” she stated in a tweet late on Saturday night. You may put your money on my saying no to this arrangement.
In the meantime, the Democrats may be facing their own rebellion from the party’s left wing, which is opposed to any and all curbs placed on spending.
The Congressional session has been put on hold for the duration of the holiday weekend; nevertheless, members will be required to return to vote.
In the event of a default, the government would not be unable to make loan repayments until the middle of June; however, in the interim, it would most likely be required to suspend $25 billion in social security checks and paychecks for federal employees.
The major rating agencies have been keeping a close eye on the conflict. Morningstar and Fitch have both issued statements indicating that they may choose to reduce their ratings even if the crisis is averted.
When the previous administration of Barack Obama narrowly avoided a default 12 years ago, it cost taxpayers more than one billion dollars in additional interest expenses as a result of a ratings downgrading.