The US President Joe Biden, and Speaker of the US House of Representatives have reached a deal on the US debt ceiling, avoiding dropping the country’s (and the world’s) economy over the cliff edge.
A vote is expected to take place on Wednesday (31st March), one day before the US was expected to hit the debt ceiling.
According to reports by the BBC, President Joe Biden described the deal as a compromise and that it was good for the country, “because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost.”
While the deal has not been made public in full, what is known is that non-defence discretionary spending would be largely unchanged and only increase by one per cent by 2025.
However, defence spending is expected to receive a massive boost, rising to around $885 billion (€824.69 billion) in 2024, an 11 per cent increase over the current budget.
The Inland Revenue Service is also expected to gain $80 billion (€74.55 billion) in new funding, while unused COVID-19 relief funds are expected to be cut by roughly $50 – $70 billion (€46.5 – 65 billion).
It also includes new rules to facilitate permit approvals for energy projects, stricter work requirements for low-income individuals who benefit from social security and food assistance from the Government.
Both the US House of Representatives and the US Senate have to vote to approve the bill, which could still fail. The Republican majority House may not be satisfied with the level of spending cuts, while the Democrat majority Senate may be disgruntled with the amount of spending cuts it is asked to accept.
What has already happened is that confidence in the US Government’s ability to borrow money and repay its debts has been shaken. Fitch Ratings placing the US’s AAA credit rating on watch negative, indicating that it could downgrade it if lawmakers fail to pass the US debt ceiling deal.
A worse credit rating could increase the cost of borrowing funds even higher, accelerating the next time the country could hit the debt ceiling, as interest on debt picks up.
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