United States steps back from debt cliff... for now

·3-min read
US Senate Majority Leader Chuck Schumer has appealed for Republicans to allow a majority vote (AFP/Olivier DOULIERY)

The United States staved off a catastrophic credit default Thursday after Democrats accepted an offer from the Republicans to raise the debt limit for two months.

Chuck Schumer, who leads the Democrats in the Senate, announced the breakthrough on Thursday morning after hours of negotiations in Congress going into the early hours of the morning.

"We have reached agreement to extend the debt ceiling through early December, and it's our hope that we can get this done as soon as today," Schumer said.

With the threat of a default just 11 days off, Republican Senate Minority leader Mitch McConnell offered the deal as his party was preparing to vote down House-passed Democratic plans for a much longer hike in the nation's borrowing cap of more than a year.

The deal kicks the can down the road to coincide with another major funding deadline -- a government shutdown when federal agencies run out of money from December 3 that would paralyze much of Washington and beyond as federal services and properties close.

The temporary debt compromise will need to be passed by both chambers of Congress.

It does not align with either party's original goals, but was being seen as a partial win by both sides.

"Republican and Democratic members and staff negotiated through the night in good faith," McConnell said.

"The Senate is moving toward the plan I laid out yesterday to spare the American people a manufactured crisis."

US Treasury debt is considered the world's benchmark safe asset and its interest rates are the basis for the pricing of financial products and transactions across the planet.

Even the threat of a default can spook financial markets and damage the economy. A first-ever actual default would have been felt around the globe.

- 'Nuclear option' -

The deal marked a breakthrough in an impasse that risked leaving the federal government incapable of securing and paying off loans after October 18.

Tens of millions of Americans would have lost regular federal payments while the government's ability to provide for national defense, the Covid-19 pandemic response and day-to-day services would also likely have been severely impeded.

McConnell had been insisting since July that Democrats suspend the debt limit with no Republican help, through a laborious and partisan process known as "budget reconciliation."

But he was reportedly spooked by Democratic proposals to solve the issue via the "nuclear option" of modifying the filibuster -- which normally requires 60 votes to pass legislation.

The legislative Band-Aid agreed Thursday buys the Democrats who control the White House and both chambers of Congress breathing space to pass a longer term debt limit extension, although they are still refusing to pursue reconciliation.

"McConnell caved," Senator Elizabeth Warren told reporters as details of the compromised emerged on Wednesday.

"And now we're going to spend our time doing child care, health care and fighting climate change."

The olive branch has left some senators on both sides of the aisle unsatisfied, however.

Lindsey Graham, the top Republican on the Senate Budget Committee, said in a statement he did not support raising the debt limit to cover Democratic proposals for a multi-million-dollar social spending package.

It is not legally possible to do this, as raising debt ceiling hikes may only used to pay back money already spent, including trillions of dollars Republicans added to the national debt under Trump.

"I will work with my Democratic colleagues to make raising the debt limit through the reconciliation process as smooth as possible, but I will not be held hostage or extorted regarding threats to change the legislative filibuster," Graham said late Wednesday.

ft/bgs

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