Debt Deal Ok'ed - US Debt Ceiling Now $14.29 Trillion

By: EW News Desk Team   Date: 2 August 2011

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EW News Desk Team

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EconomyWatch, News Desk Team

 

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02 August 2011

The House passed a $2.4 trillion debt-ceiling increase Monday night with the Senate planning to follow on Tuesday, after one of the most ferocious fights ever over government spending. Congressional approval, along with President Barack Obama's signature, would raise the government's debt limit just before the U.S. government would begin defaulting on its obligations.

Lawmakers and other officials raised questions Monday about how the complicated agreement will unfold in the coming months, such as who will sit on a key deficit-cutting congressional committee and whether that panel can raise taxes. The Treasury Department has said for months that the government would begin running out of money to pay bills Tuesday if the government's $14.29 trillion borrowing limit wasn't increased.

Members of both parties said a debt-ceiling increase had to be accompanied by spending cuts, but they couldn't agree on the scope of those cuts. The agreement, struck late Sunday, raises the debt cap by up to $2.4 trillion in three steps. It cuts $917 billion in spending over 10 years and creates a congressional committee to close the deficit by an additional $1.5 trillion.

If the panel deadlocks or Congress doesn't accept its plan, a pre-arranged set of spending cuts would kick in.

"Everybody had to give something up," Mr. Reid said. "People on the right are upset. People on the left are upset. People in the middle are upset."

Presidential historian Richard Shenkman discusses how President Obama's handling of the debt crisis is likely to affect his image and standing with voters with the 2012 election just over a year away. Conservative Republicans had their own complaints: that the package doesn't cut enough, defers tough decisions to a committee and doesn't require approval of a constitutional amendment to balance the federal budget.

Republicans also worried that the package cuts too much from defense spending. Of the initial $917 billion in spending cuts, $350 billion come from defense.

Mr. Boehner met with members of the House Armed Services Committee to calm their concerns, saying he told them, "This is the best defense number we're going to get."

At first Monday, stock investors reacted positively to the tentative accord hammered out Sunday evening, sending the Dow Jones Industrial Average up more than 1% in early trading. But the relief was short-lived as investors turned their attention to the fragile economic recovery, and the Dow finished down 10.75 points, or 0.09%, at 12132.49.

As leaders on both sides worked to sell the package to their members, they disagreed over whether it allows for tax increases.

"I think the big win here for us and for the American people is the fact that there are no tax hikes in this package," said House Majority Leader Eric Cantor (R., Va.).

Full story from Wall Street Journal

 


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