Debt in the United States: an agreement in principle reached to avoid bankruptcy

Debt in the United States an agreement in principle reached

The bankruptcy of the United States could finally be avoided: the American president and the Republican leader announced that they had signed on Saturday, May 27, after tough negotiations, an agreement in principle just a few days before the payment default deadline. Kevin McCarthy has indicated that he will meet again this Sunday with Joe Biden and will publish the text the same day. The latter must then go through a particularly divided Congress: the House of Representatives, with a Republican majority, will vote on it on Wednesday, then will come the Senate, with a Democratic majority.

The US government was getting dangerously close to default. According to Secretary of State Janet Yellen, it would have been reached on June 5, for lack of compromise between the executive and the opposition to raise the debt ceiling, currently located at 31.4 trillion (one thousand billion) dollars. The Biden administration would then have been unable to honor its financial commitments: salaries, pensions or reimbursements to its creditors. While the procedure for raising the debt ceiling by Congress is supposed to be routine, Republicans, the majority in the House of Representatives, have used it since the beginning of the year as an instrument of political pressure to obtain budget cuts. from the government.

Raising of the ceiling until 2025

The agreement reached raises for two years, until January 2025, i.e. after the presidential election of 2024, the public debt ceiling of the United States, reports the site of the conservative media Fox News. On Saturday, the Democratic president said the deal with the Conservatives was “good news, because it avoids what would have been a catastrophic default.” Kevin McCarthy said in a short speech that the budget compromise found to avoid default was “completely worthy of the American people”.

Its contents are currently unknown. The conservative leader only welcomed the “historic reductions” in public spending that the agreement provides, according to him, which was the main demand of his camp. “This agreement is a compromise, which means that everyone does not get everything they want”, reacted for his part Joe Biden, assuring that the text “reduces expenses while protecting essential public programs”.

According to an AFP source, the deal does not include the drastic cuts the Conservatives want. For the British media BBC and its American partner CBS, non-defense government spending would remain flat for two years and then increase by 1% in 2025. New rules are also expected to apply for access to certain federal aid programs, but the source clarified that the agreement protected the Cut Inflation Act and student debt relief plan, signed by Joe Biden.

Testing a Divided Congress

Joe Biden, candidate for his re-election, has long refused to come to the negotiating table, accusing the opposition of holding the American economy “hostage” by demanding such cuts. After several meetings at the White House, the teams of the president and the Republican “speaker” finally got down to endless negotiating sessions – all abundantly commented on by the whole of Washington.

The agreement in principle found on Saturday evening gives a little air to the financial markets, which have never really panicked but that this paralysis was starting to get impatient. The rating agency Fitch had all the same placed Thursday “under surveillance” the AAA rating of the United States, estimating that the failure to find an agreement “would constitute a negative sign in terms of governance”.

However, this compromise must now be validated by the Senate, controlled by the Democrats, and by the House of Representatives, on which the Conservatives have a fragile majority. “The marathon is far from over, and there is still little certainty that the nation will avoid a default as both sides now work to shore up support around the emerging package,” thus judges the American channel CNN. Republican elected officials in the House of Representatives have already announced their opposition to the text, such as Bob Good or Lauren Boebert. “No elected representative claiming to be from the conservative camp could justify a positive vote”, estimated the first. “Our constituents deserve better than this, you can count me as a NO to the deal,” the second tweeted. Case to follow.

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