Ever since Alexander Hamilton, one of the founding fathers, agreed in 1790 to pay the Revolutionary War bonds at 100%, even though they were trading well below their value, the United States has earned a reputation as a reliable country that has never defaulted on its debt, even if it has been on the edge of a cliff from time to time. This time, the Senate has approved a bill suspending the debt ceiling with only a few days to spare before the federal government runs out of money, a date estimated at June 5. President Joe Biden is expected to sign it into law this Friday.
“America is a nation that pays its bills and meets its obligations — and always will be,” said the president in a statement provided by the White House just minutes after the final vote. The statement underscores that “senators from both parties voted to protect the hard-earned economic progress we have made and prevent a first-ever default by the United States.”
The Senate approved the same legal text that left the House of Representatives on Wednesday, without changing as much as a comma, despite anger from some senators. Any amendment would have meant sending the bill back to the lower house for a vote, delaying the process at a time of maximum urgency.
The senators painstakingly rejected all the amendments one by one in a marathon session that ran until around 11:00 p.m., when the upper house definitively voted in favor of the bill.
The law, which will take effect after it is signed by Biden, suspends the borrowing limit (which is currently set at $31.4 trillion) until January 2025 — that is to say, for the remainder of Biden’s presidency — in exchange for cuts in some spending items and other measures. Once it is signed into law, the Treasury will have a free hand to issue debt to raise money to finance payments of $92 billion due next week.
The final vote was 63-36. The most radical elements of both parties rejected the bill for opposing reasons. The cuts do not go far enough, according to hard-line Republicans, and are considered excessive by some Democrats. The deal was forged by Biden and House Speaker Kevin McCarthy, a Republican.
“No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people,” said Biden following the vote on Thursday. “Our work is far from finished, but this agreement is a critical step forward, and a reminder of what’s possible when we act in the best interests of our country. I look forward to signing this bill into law as soon as possible and addressing the American people directly tomorrow.”
Addressing the nation
Biden is expected to address the nation on Friday at 7 p.m., according to his agenda. The primetime schedule suggests that in a way, the political battle is underway to impose the most favorable narrative behind what has been a compromise solution.
The new legislation will change some policies, including imposing new work requirements for some Americans receiving food aid, and greenlighting a gas pipeline in Appalachia that many Democrats oppose. The law will strengthen funding for the defense industry and veterans, cut back new funding for the I.R.S. and impose automatic 1% spending cuts if Congress fails to pass its budgets annually.
Lindsey Graham, a senator from South Carolina, led a group of senators who complained that the increased military spending contemplated in the agreement was not enough to keep pace with inflation, especially given the extra spending for the war in Ukraine. Defense hawks were able to wrest a statement from Senate Majority Leader Chuck Schumer that the agreement does not limit the Senate’s ability to approve additional emergency funding for national security, including Ukraine, or for disaster relief and other matters of national importance.
The independent Congressional Budget Office said the package’s spending restrictions would reduce the deficit by $1.5 trillion over the decade, one of the main goals of Republicans trying to rein in the debt burden.
A default would have had disastrous consequences for the economy. The White House Council of Economic Advisers issued a report warning that the threat of default was already having an effect; a default, however short-lived would have left a costly bill, while a prolonged default would have caused gross domestic product to fall by 1.5% in the third quarter (at an annualized quarterly rate of 6.1%) and the unemployment rate to rise by five points, destroying 8.3 million jobs.
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