Debt Agreement to Save US from Catastrophic Default Heads to Divided Congress

“We’ve reached a bipartisan budget deal that we’re ready to take to the full Congress,” Biden said during a brief media appearance Sunday night at the White House.

“The agreement avoids the worst possible crisis: a default for the first time in the history of our country, an economic recession, devastated retirement savings accounts, millions of lost jobs”, continued the president. “This agreement is now going to the House of Representatives and the Senate. I strongly urge both chambers to adopt it,” he added.

Earlier in the day, Mr. Biden and the Republican leader in Congress Kevin McCarthy put the finishing touches to this agreement in principle on the raising of the ceiling on the American debt, announced the day before after marathon negotiations and which makes it possible to move away the threat of default from June 5.

But the agreement must receive the approval of a divided Congress and is already the subject of a revolt of elected progressives and conservatives, some speaking of a “capitulation”.

“It may not satisfy everyone, but it’s a step in the right direction that no one expected,” the Republican leader defended on Fox News on Sunday, welcoming in particular a downward “new trajectory” given to public spending.

He predicted that a “majority” of elected Republicans would vote for the text.

The House of Representatives, where Republicans have a fragile majority of 222 to 213, will vote on Wednesday. Next will come the Senate, narrowly controlled by the Democrats (51-49).

The leader of the Senate Democrats Charles Schumer, who controls the parliamentary agenda, has already warned to expect votes “Friday and Saturday” next, two days before the deadline for a payment default.

“Let’s continue to move forward in meeting our obligations and building the strongest economy in the history of the world,” said Biden, who admitted, however, that he had “no idea” whether Mr. McCarthy had enough votes to pass the text through Parliament.

Kevin McCarthy felt that the agreement was “completely worthy of the American people”.

“Victory” for Biden

The text of the agreement has not yet been disclosed, but in broad outline it raises for two years, so until after the presidential election of 2024, the public debt ceiling of the United States.

This is currently set at $31.4 trillion.

Non-defence spending will remain virtually unchanged next year and will increase only nominally in 2025.

The agreement also provides for a $10 billion cut in funds allocated to the tax services to modernize and strengthen controls, as well as the recovery of funds allocated to the fight against COVID-19 that have not yet been spent. .

The compromise also includes new conditions imposed to benefit from certain social aids, including food stamps.

“Overall, the deal is more of a victory for Biden and the Democrats, as it contains relatively limited budget cuts and avoids another standoff for the president during the remainder of his term,” said political scientist Nicholas Creel, predicting “ultimately” its adoption in Congress despite opposition.

Political credit

MM. Biden and McCarthy are playing their political credit in this affair.

The first, who is a candidate for re-election, must avoid a bankruptcy with potentially catastrophic consequences, while the second seeks to establish his authority after having been poorly elected to the perch at the start of the year.

President Biden had long refused to come to the negotiating table, accusing the opposition of taking the American economy “hostage”, but finally resolved to do so.

Still, an alliance of circumstance between elected progressives and conservatives could derail everything.

Conservative Republicans have already announced their opposition to the text, such as Representative Dan Bishop, who vilified Mr. McCarthy for having “obtained almost nothing”.

Without raising the debt, the first world power risks, according to the American Treasury, being in default of payment from June 5, unable to honor its financial commitments: salaries of civil servants, pensions or reimbursements to its creditors.

Like almost all major economies, the United States lives on credit.

But unlike other developed countries, America regularly comes up against a legal constraint: the debt ceiling, the maximum amount of indebtedness of the United States, which must be formally raised by Congress.

This has long been routine legislative procedure. The Republicans have made it an instrument of political pressure.