The White House and the Republicans on Capitol Hill reached an agreement in principle on Saturday night to expand the debt margin of the United States, thus avoiding a financial collapse that would have harmed the world economy.
That increase still must be approved by the Capitol, but it is enough that there is a simple majority in the House, which the Republicans control by just nine votes out of 435. In the Senate, the Democrats are in the majority.
Republicans have resisted an expansion, demanding deep cuts in social spending and reduced budgets at the IRS. The US was going to be insolvent in barely a week.
House Speaker Kevin McCarthy, Republican, and President Joe Biden had an hour-and-a-half-hour phone conversation Saturday night, reaching agreement in principle on one outstanding detail, on new employment requirements in certain social security benefits.
The president spends the weekend at the Camp David residence, and from there he has continued negotiating with the conservatives. With each day that has passed since the beginning of the year, amid intense negotiations between the two parties, the US has come dangerously close to defaulting on its debt, and to a situation of public insolvency that according to economists could well lead to a global recession.
The new agreement raises the borrowing term to 2025. In return, it freezes domestic spending and implements new work requirements for those who receive food assistance from the federal government, The Washington Post revealed last night.
The agreement has serious internal resistance within both parties. Above all, they are opposed by not a few Republicans in the fiscally conservative wing of the party, believing that their leader has not obtained enough concessions and cuts.
The Republican-based Freedom Caucus even tweeted that the conditions are unacceptable, and they may vote against it. McCarthy, the speaker of the House who has negotiated with Biden, only managed to win the position after 15 votes, due to resistance from that group and other like-minded deputies.
What is known as a debt ceiling is a legal limit on the amount of debt that the US federal government can issue to finance itself. It was enforced by law in 1974, and has been adjusted periodically ever since. When the debt ceiling is reached, as in this case, the Capitol must increase it or the government will not be able to borrow more money to finance its expenses.
The US has a current debt limit of 31.4 trillion dollars (28.5 trillion euros at current exchange rates). In reality, the US Treasury hit that ceiling in January 2023 and has been taking extraordinary steps to keep footing the bills, especially at a time of rising military spending to help Ukraine fight off the Russian invasion.
The federal government borrows an average of more than $7 billion per business day. Raising the debt ceiling does not increase federal spending beyond what Congress has already approved; it simply allows the government to pay for the acquisitions and obligations it has already committed to.
The current US Gross Domestic Product, according to figures from the federal government itself, is 26.4 trillion dollars annually. Since the Budget Control Act was passed, the debt ceiling has been changed 78 times, 49 times under Republican presidents and 29 times under Democratic presidents, according to the Treasury.
George is Digismak’s reported cum editor with 13 years of experience in Journalism