Home Business Crunch deal to raise US debt ceiling passes through House of Representatives

Crunch deal to raise US debt ceiling passes through House of Representatives

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The deal, agreed following negotiations between the Democrats and the Republicans, aims to avert a potentially catastrophic scenario where the US defaults on its national debts.
Sky News reporter
Thursday 1 June 2023 03:47, UK
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A crunch deal to raise the US debt ceiling has been voted through by the House of Representatives.
The agreement – which aims to avert a potentially catastrophic scenario where the US defaults on its national debts – passed through the Republican-majority House by 314 to 117 votes.
The proposal will now move to the Senate. The Senate’s majority leader, Chuck Schumer, has vowed to move quickly to pass the bill.
It needs to be on President Joe Biden’s desk by Monday’s deadline – the point at which the US federal government is expected to run out of money to pay its bills.
„This agreement is good news for the American people and the American economy,” Mr Biden said after the vote.
„I urge the Senate to pass it as quickly as possible so that I can sign it into law.”
What is the debt limit – and why does it matter?
The main aim of the deal is to increase the US debt limit from $31.4trn (£25.3trn) – which it achieves by suspending the borrowing limit until January 2025 rather than setting a new level.
It also averts a situation where the US defaults on its national debts – a scenario that would have huge impacts both for the US and the wider world economy.
US Treasury secretary Janet Yellen previously warned that without a deal to suspend the debt ceiling, the US would not have enough money to meet all of its financial obligations by 5 June.
That would mean civil servant wages, social welfare payments, and health insurance would go unpaid.
Read more:
US debt ceiling: What is it and how devastating would a default be?
US correspondent
American politics has a strange ability to create a sort of manufactured jeopardy, which then has the prospect of becoming a self-fulfilling prophecy.
Few really believe that the country’s politicians will actually allow the nation to default for the first time in its history.
But this game of chicken is going to the wire – both sides unwilling to move, even to negotiate, until the last minute to eke out concessions.
And to be clear, it is a game which can go wrong – and if a default did happen, it would be a global crisis.
The vote overnight, for the deal – to raise the debt ceiling – means the crisis is a little closer to being avoided.
Congressmen and women found consensus in a deeply divided house to vote for the deal which had been hammered out by President Biden and his political foe, House speaker Kevin McCarthy, over the past few days. It passed 314 to 117.
But in their pre-vote speeches, it was clear that many, many politicians have deep reservations about the level of unsustainable debt.
Yes, they were relieved that the deal allows bills to be paid, it protects the country’s credit rating, medical care is protected as is social security.
But, „a moment of reckoning is coming”, one Republican warned. Another said the level of debt is „totally unsustainable and irresponsible”.
Some Republicans celebrated concessions they got, which will impose spending caps and place checks and balances on the executive branch of government.
But the consensus was that it wasn’t perfect or even good for anyone. But that’s the price of such divided politics.
The bill now heads to senators. They may want amendments, but are likely to pass it. Crisis is then averted. This game of chicken over. Debt ceiling raised. Can kicked down the road.
If the US no longer pays interest on its bonds – IOUs it issued to raise funds – it would default on debt payments and its credit rating would fall.
A vital way the country raises money – selling bonds – would also be at risk.
Economists warn that a prolonged period where the US cannot pay its bills would lead to a nearly 20% drop in stock prices – and an economic contraction of up to 4%.
Bipartisan deal
Wednesday’s vote comes after Mr Biden and leader of the House of Representatives, speaker Kevin McCarthy, reached an agreement over the country’s debt ceiling.
In order to secure the agreement, the Democrats were forced to make concessions to the typically pro-small-state Republicans, including spending cuts and policy concessions.
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In a speech before the vote, Mr McCarthy praised the bill’s budget cuts, which he said were needed to curb Washington’s „runaway spending”.
Despite his praise of the deal, it drew opposition from 71 hardline Republicans. That would normally be enough to block partisan legislation, but 165 Democrats backed the measure and pushed it through.
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