US narrowly avoids debt default as Congress votes for emergency deal

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by a Newsnet reporter
 
The US has staved off the first default in its history as congressmen voted to back the emergency package aimed at dealing with the superpower’s debt crisis.
 
The bipartisan agreement, passed by 269 votes to 161, will be a mixed blessing to President Barak Obama who faced the first real crisis of his presidential term.

The deal allows the federal government to raise the debt ceiling from $14.3 trillion to $16.7 trillion but imposes sweeping spending cuts over ten years in return.  The US hit its debt limit on May 16th this year.

Had the eleventh hour negotiated agreement not been on the President’s desk by this morning then Americans could have faced an economy in free-fall with rapidly rising interest rates, a falling dollar and unstable financial markets.

Markets had already been spooked when the negotiations appeared to be stalling and there will be relief at the eleventh hour compromise.

Vice-President Joe Biden described the debt ceiling as “the sword of Damocles” and insisted had it not been agreed then the USA would have defaulted on her debt.

Despite the dire warnings, members of both the Republican and Democratic parties still had to be persuaded of the necessity of the deal.  Scores of Democrats initially held back from voting to force Republicans to register their positions first. Then, as the time for voting wound down, Rep. Gabrielle Giffords, D-Ariz., returned to the floor for the first time since being shot in January and voted for the bill to jubilant applause.

A number of Republicans are worried about cuts in defence spending and the lack of a required ‘balanced budget’ amendment to the Constitution.  Democrats are angry over the extent of the deal’s public spending cuts, and the absence of any immediate tax hikes on wealthier Americans.

Republican Maxine Waters, of California warned that the deal “may be the single worst piece of public policy to ever come out of this institution,”.

Democratic House Minority Leader Nancy Pelosi said: “We’re very concerned that [the] bill makes these big cuts and has … not one red cent from the wealthiest people in our country”.

The spectre of the world’s economic superpower nearing financial disaster and having to implement savage spending cuts to avoid defaulting will come as a shock to those who have long argued that with size comes a guarantee of security.

The collapse of some of the world’s biggest financial institutions has reverberated throughout the global economy shaking large and small alike.  Ireland and Greece have accepted bailouts and Spain, Portugal and Italy currently teeter.

With the UK economy currently treading water and forecasts of sluggish growth, there will be fears that the strategy of printing money has not worked and the country is still not out of the woods.

 

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