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Today, the White House and the Republicans have come to an agreement to avoid a US debt default.
Under the agreement, the government will be temporarily allowed to borrow again, unlocking a fiscal stalemate that lasted for weeks. The parties had been locked in negotiations to increase the US’s borrowing limit, which had been frozen since May, and the deal is estimated to increase it by $2.1 trillion.
The deal also includes provisions to cut $1 trillion in spending over the course of the next decade. This external deficit reduction would come from a mixture of mandatory cuts as well as billions of dollars from federal employee pension programs.
This deal was reached after a deadlock in Congress for months, in which the US was close to surpassing its debt ceiling, a point which would have had catastrophic consequences for the country’s economic stability and possibly impacted global markets too.
The Obama administration is relieved that the deal has finally been reached, as the risk of defaulting on US debt was very real. The Treasury Department had predicted that without an agreement the US would lose its ability to borrow money after August 2, and warned of a “silver tsunami” of debt repayment due dates.
Although the agreement was welcomed cheerily by the Republicans and the White House, it has not been well-received by all. The Democrats were pushing for a larger package of spending cuts, insisting that they include tax hikes for the wealthy. Ironically, the most conservative Republicans also opposed to the bill because they felt it adds too much debt.
Overall, this agreement has been praised for effectively averting a debt default situation and restoring market faith in the US economy.