Senate leaders have announced a deal in December to expand the government’s borrowing authority, temporarily averting an unprecedented federal default that experts say would have devastated the economy.
“Our hope is that this happens as soon as today,” Majority Leader Chuck Schumer declared Thursday as the Senate opened.
In their agreement, Republican and Democratic leaders shrugged off a dangerous impasse over lifting the nation’s borrowing limits, with Democratic senators accepting a proposal from Senate Republican Leader Mitch McConnell.
McConnell proposed a day before Republicans were ready to block long-term legislation to suspend debt limits and as Joe Biden And business leaders expressed their concern that a lapse would disrupt government payments to millions and plunge the country into recession.
Wall Street continued to rally on the news. By noon the S&P 500 was up 1.5%, and the Nasdaq Composite, with a heavy load of technology stocks, was up 1.8%.
The Senate was set to vote on the measure on Thursday evening.
Earlier the White House had indicated Biden Administration There was relief when overwhelmed by the temporary fix. The principal deputy press secretary, Karine Jean-Pierre, told reporters en route to Chicago with the president on Air Force One that it was “a positive step”.
She continued: “It gives us some breathing room from the horrific default that we were coming through because of Senator McConnell’s decision to play politics with our economy … It shouldn’t have been a political game from the start. .. partisan football. It’s about paying off the debt that both sides have already paid.”
The agreement sets the stage for a sequel of sorts in December, when Congress will again face a pressing deadline to fund the government and raise the loan limit before heading home for the holidays.
The agreement would allow the loan limit to be raised to around $480bn, according to a Senate aide familiar with the talks on condition of anonymity. This is the level that the Treasury Department has said needs to be brought up by December 3.
Congress had only a few days to act before the October 18 deadline, when the Treasury Department warned it would lack funds to handle the country’s already accrued debt load.
McConnell and Senate Republicans have insisted that Democrats will have to go it alone to raise the debt limit and allow the Treasury to renew its borrowings so the country can meet its financial obligations.
In addition, McConnell has insisted that Democrats use the same cumbersome legislative process, called reconciliation, that they used to pass the $1.9tn COVID-19 relief bill and create safety nets, to promote health and the environment. to try to pass Biden’s $3.5tn measure. program.
McConnell said in his motion Wednesday that Republicans will still insist that Democrats use the reconciliation process for long-term debt limit expansion.
However, he said Republicans were willing to “accelerate aid” in that process, and in the meantime Democrats were in general to pass a short-term debt limit extension with a fixed dollar amount to cover current spending levels in December. use the legislative process.
While he continued to blame the Democrats, his proposal would also allow Republicans to avoid the condemnation they would have received from some quarters if the financial crisis had struck.
At a White House event with top business leaders, Biden had shamed Republican senators for threatening to block any suspension of the $28.4tn cap on the government’s lending authority.
“It’s not right and it’s dangerous,” Biden said of the resistance by Senate Republicans.
Before the White House meeting, the administration warned that if borrowing limits were not raised, it could set off an international financial crisis that the United States cannot manage.
“A default would send shock waves through global financial markets and could cause credit markets around the world to freeze and stock markets to collapse,” the White House Council of Economic Advisors said in a new report. “Employers around the world will probably have to start laying off workers.”
The slowdown that may begin may be worse than the 2008 financial crisis as it will come as many countries still grapple with the Covid-19 pandemic, the report said.
Once a routine affair, raising debt limits over the past decade or more has become politically treacherous, used by Republicans, in particular, to rail against government spending and rising debt loads.