The US staved off a credit default Thursday that would have sent the global economy into a tailspin as Washington’s warring political factions agreed to a stop-gap fix to raise the nation’s debt limit.
Chuck Schumer, who leads the Democrats in the Senate, announced the breakthrough after fractious 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 set to vote against House-passed Democratic plans for a hike in the nation’s borrowing cap of more than a year.
Rather than solving the crisis, the new arrangement kicks the can down the road to coincide with another major funding deadline – a shutdown that would kick in from Dec 3 when the government’s coffers theoretically run out, closing federal services and properties and paralysing much of Washington and beyond.
The temporary compromise still has some hurdles to clear.
The Senate announced it would take a final vote to seal the deal later Thursday, with the House expected to rubber-stamp the bill and send it onward to President Joe Biden’s desk in the middle of next week.
“The president looks forward to signing legislation to raise the debt limit when it is passed by Congress,” White House deputy press secretary Karine Jean-Pierre said.
Democrats will use the brief lull in hostilities to work on their multi-trillion dollar social spending package, the cornerstone of Biden’s economic agenda.
McConnell is hoping to use Biden’s sweeping proposals to campaign against “reckless” Democratic spending and will bank on the prolonged debt uncertainty counting in Republicans’ favour ahead of next year’s midterm elections.
“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.”
The lifting of the Republican blockade ended for now an impasse that risked leaving the federal government incapable of securing and servicing loans after Oct 18.
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.
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 reportedly became skittish over Democratic calls Wednesday to solve the issue via the “nuclear option” of modifying the filibuster – which normally requires 60 votes to pass legislation.
“It’s not clear whether the Democratic leaders have wasted two-and-a-half months because they simply cannot govern, or whether they are intentionally playing Russian roulette with the economy to try to bully their own members into going back on their word and wrecking the Senate,” McConnell said Wednesday on the Senate floor.
The legislative Band-Aid agreed Thursday buys the Democrats who control the White House and both chambers of Congress time to pass a longer term debt limit extension, although they are still refusing to pursue reconciliation.
They say the process would be too complex and risky. And since it requires no help from Republicans, they worry that they will be forced to carry the political stigma of the US$28 trillion-and-rising federal debt alone.
But the olive branch has left some senators on both sides of the aisle – and high-profile observers from near and far – unsatisfied.
Across Washington’s National Mall, the White House noted that it represented a deferment rather than a solution.
“Two months of continuing to argue about this does not resolve uncertainty,” Jared Bernstein, of Biden’s Council of Economic Advisers, told CNN.
And on Air Force One, White House deputy press secretary Karine Jean-Pierre called the development a positive step but accused McConnell of choosing to “play politics with our economy.”
“This is about paying the debt that both parties have already accrued, including the $8 trillion under Trump and McConnell,” she said.
Former president Donald Trump issued a statement from his home in Florida endorsing the Democratic interpretation of developments as a tactical retreat by the Republicans.
“Looks like Mitch McConnell is folding to the Democrats, again,” Trump said ahead of the deal being finalised.