After weeks of political brinkmanship, the Democrats and the Republicans agreed to a compromise deal late Sunday evening to raise the US debt ceiling from the current $14.3 trillion by about $2.4 trillion and simultaneously cut spending by an equivalent amount.
The US had breached the borrowing limit on May 16, and if Congress did not raise it further by August 2, the country would have run out of money to pay interest and principal on Treasury bonds-an unprecedented event in American history-as well as for other expenses such as social security and medicare benefits. The US federal law requires Congress to authorise any increase in borrowing to spend on approved programmes. Here is what the deal is all about:
Debt ceiling: To be raised by up to $2.4 trillion in three stages, enough to enable the government to function till 2012 end; $400 million right away, another $500 million later this year, subject to vote of disapproval; and a third increase of $1.5 trillion after a special congressional committee enacts matching spending cuts.
Spending cuts: About $2.4 trillion over 10 years in two stages; an initial $917 billion when the deal passes Congress and another $1.5 trillion by the end of the year.
Way forward: The deal must be approved by Congress and signed by President Obama by 11:59 pm Tuesday to prevent a default on debt payments. If a 12-member House-Senate committee is unable to produce a plan to cut deficit by $1.5 trillion, through tax overhaul and changes in safety net programmes, or Congress does not approve it, a pre-set array of spending cuts would kick in, including cuts in military spending and Medicare payments to health-care providers.
Risks: House Democrats may not support the deal, says House of Representatives Minority Leader Nancy Pelosi.
Downgrade: Not completely ruled out. Standard & Poor's indicated last week that anything less than $4 trillion in cuts would jeopardise the US's AAA rating.
The deal & world markets: US Treasury bonds are seen as the safest investment by governments worldwide. India holds $41 billion worth of Treasury bonds. The deal is expected to stabilise equity markets and ease fears of 2008-like financial crisis. Gold may ease; it declined to $1608 per ounce, down from record high of $1,632 on Friday.
-TOI
The US had breached the borrowing limit on May 16, and if Congress did not raise it further by August 2, the country would have run out of money to pay interest and principal on Treasury bonds-an unprecedented event in American history-as well as for other expenses such as social security and medicare benefits. The US federal law requires Congress to authorise any increase in borrowing to spend on approved programmes. Here is what the deal is all about:
Debt ceiling: To be raised by up to $2.4 trillion in three stages, enough to enable the government to function till 2012 end; $400 million right away, another $500 million later this year, subject to vote of disapproval; and a third increase of $1.5 trillion after a special congressional committee enacts matching spending cuts.
Spending cuts: About $2.4 trillion over 10 years in two stages; an initial $917 billion when the deal passes Congress and another $1.5 trillion by the end of the year.
Way forward: The deal must be approved by Congress and signed by President Obama by 11:59 pm Tuesday to prevent a default on debt payments. If a 12-member House-Senate committee is unable to produce a plan to cut deficit by $1.5 trillion, through tax overhaul and changes in safety net programmes, or Congress does not approve it, a pre-set array of spending cuts would kick in, including cuts in military spending and Medicare payments to health-care providers.
Risks: House Democrats may not support the deal, says House of Representatives Minority Leader Nancy Pelosi.
Downgrade: Not completely ruled out. Standard & Poor's indicated last week that anything less than $4 trillion in cuts would jeopardise the US's AAA rating.
The deal & world markets: US Treasury bonds are seen as the safest investment by governments worldwide. India holds $41 billion worth of Treasury bonds. The deal is expected to stabilise equity markets and ease fears of 2008-like financial crisis. Gold may ease; it declined to $1608 per ounce, down from record high of $1,632 on Friday.
-TOI
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