US President Barack Obama announced an 11th-hour deal with the US Congress to avert an unprecedented default on US debt payments, triggering a widespread rally on stock markets yesterday and sighs of relief around the world.
With just two days left before the US would run short of cash, Obama and his Republican foes said late on Sunday after round-the-clock negotiations that they had reached a framework for more than US$2.4 trillion in spending cuts.
“I want to announce that the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default, a default that would have had a devastating effect on our economy,” Obama said.
“This process has been messy; it’s taken far too long,” Obama told a hastily convened evening press conference. “Nevertheless, ultimately, the leaders of both parties have found their way toward compromise.”
However, the package still needs approval from Congress. Leaders of the Democratic-held US Senate and Republican-led US House of Representatives were working to rally polarized lawmakers.
“To pass this settlement, we’ll need the support of Democrats and Republicans in both the House and Senate. There is no way either party — in either chamber — can do this alone,” US Senate Majority Leader Harry Reid said.
US House Speaker John Boehner called the plan a remedy to avert “a job-killing national default that none of us wanted.” However, the plan faces opposition both from the ultra-conservative “Tea Party” movement, which favors sweeping spending cuts, and progressive Democrats who want taxes on the wealthy before any thought of cutting social welfare programs.
As described by Obama and US congressional leaders, the deal would raise the country’s US$14.3 trillion debt ceiling by at least US$2.1 trillion. It would also make more than US$2.4 trillion in spending cuts in two steps, including through a special new committee required to submit proposals by Nov. 23.
In Washington, Republicans crowed that the framework did not explicitly call for raising tax revenues despite Obama’s repeated calls for increasing revenues from the rich and wealthy corporations.
The framework would also fulfill one of Obama’s top goals: giving cash-strapped Washington the ability to borrow by enough to avoid another politically fraught debt battle before he faces re-election in November next year.
The package would cut military spending by at least US$350 billion at a time that the US is looking to exit Iraq and Afghanistan. A White House official hoped half of total cuts would come from defense, but leading Republicans have already cried foul.
Obama trumpeted that the cuts would bring annual domestic government spending to the lowest level in 60 years, but promised they would not come so “abruptly” as to be a “drag” on the fragile US economy.
However, US Representative Raul Grijalva, a fellow Democrat and co-chair of the Congressional Progressive Caucus, rejected the framework in a blistering statement declaring: “This deal is a cure as bad as the disease. I reject it.”
Democratic House Minority Leader Nancy Pelosi said “we all agree that our nation cannot default,” but gave Obama’s announcement a chilly welcome.
“I look forward to reviewing the legislation with my caucus to see what level of support we can provide,” Pelosi said.