US President Joe Biden announced on Monday that he had reached an agreement with House Speaker Kevin McCarthy on an agreement to raise the US debt ceiling and that the document would be submitted to Congress for approval.
Biden referred to the agreement, which came after nearly a month of frantic negotiations between administration officials and Republican Party leaders, as a "compromise. McCarthy, on the other hand, referred to the agreement as "worthy of the American people.McCarthy's support, along with at least some Republicans in the House, is expected to allow the agreement to pass in the party-controlled House.
The U.S. Treasury Department has warned that the United States will default if an agreement on raising the debt ceiling is not reached by June 5. Republicans demanded a series of cuts to the U.S. state budget, particularly in the areas of education and welfare.
In a brief address to reporters at the White House, President Biden said: "The proposed deal is a very important step forward. It takes off the table the threat of catastrophic insolvency and government shutdowns and protects our historic, hard-earned economic recovery."
"The agreement also represents a compromise where neither side got everything it wanted, but that's the responsibility of good governance," the president said. Biden referred to House Speaker McCarthy, saying he negotiated "in good faith" and had the votes needed to get the deal through Congress.
The U.S. debt ceiling currently stands at $31.4 trillion. The U.S. government has been warning for several weeks that if Congress, one of whose houses is controlled by the Republican Party, does not raise the debt ceiling, the U.S. government will have no way to finance its obligations with regard to the regular payments to repay loans it has taken. This could mean a default that would shake up the economy and probably lead to a downgrade in the U.S. credit rating, with all that entails.
The reason the US needs to take out more and more loans – in the form of bonds and other means – is that it has a fixed budget deficit, meaning that it has too little money available than it needs to spend on current payments, and if the debt ceiling is not changed, the government will probably have no way to finance the current deficit by the beginning of June. In fact, a few months ago, the US officially reached the debt ceiling, but the US Treasury Department managed to finance the deficit with existing funds and not through new loans by diverting resources. Now, these special measures will probably not be enough, and the United States may, for the first time in history, be in a state of payment arrears.
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