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US Congress averts historic default, approves debt-limit suspension

Published 06/01/2023, 06:06 AM
Updated 06/02/2023, 04:51 AM
© Reuters. U.S. Senate Majority Leader Chuck Schumer (D-NY) arrives for his news conference after the weekly Senate Democratic caucus policy luncheon at the U.S. Capitol in Washington, U.S. May 31, 2023.  REUTERS/Jonathan Ernst

© Reuters. U.S. Senate Majority Leader Chuck Schumer (D-NY) arrives for his news conference after the weekly Senate Democratic caucus policy luncheon at the U.S. Capitol in Washington, U.S. May 31, 2023. REUTERS/Jonathan Ernst

By Richard Cowan and Gram Slattery

WASHINGTON (Reuters) - The U.S. Senate on Thursday passed bipartisan legislation backed by President Joe Biden that lifts the government's $31.4 trillion debt ceiling, averting what would have been a first-ever default.

The Senate voted 63-36 to approve the bill that had been passed on Wednesday by the House of Representatives, as lawmakers raced against the clock following months of partisan bickering between Democrats and Republicans.

The Treasury Department had warned it would be unable to pay all its bills on June 5 if Congress failed to act by then.

"We are avoiding default tonight," Senate Majority Leader Chuck Schumer said on Thursday as he steered the legislation through his 100-member chamber.

Biden praised Congress' timely action. "This bipartisan agreement is a big win for our economy and the American people," the Democratic president said in a statement, adding that he will sign it into law as soon as possible. He said he would make an additional statement on Friday at 7 p.m. EDT (2300 GMT).

Biden was directly involved in negotiations on the bill with House Speaker Kevin McCarthy.

While this bitter battle has ended, Senate Republican Leader Mitch McConnell wasted no time flagging the next budget fight.

"In the coming months, Senate Republicans will continue working to provide for the common defense and control Washington Democrats’ reckless spending," he said in a statement.

McConnell was referring to 12 bills Congress will work on over the summer to fund government programs in the fiscal year beginning Oct. 1, which will also carry out the broad instructions of the debt limit bill.

Treasury Secretary Janet Yellen, meanwhile, issued some pointed advice saying, "I continue to strongly believe that the full faith and credit of the United States must never be used as a bargaining chip," as Republicans did over the past several months.

Before the final vote, senators tore through nearly a dozen amendments - rejecting all of them during a late-night session in anticipation of Monday's deadline.

With this legislation, the statutory limit on federal borrowing will be suspended until Jan. 1, 2025. Unlike most other developed countries, the United States limits the amount of debt the government can borrow, regardless of any spending allocated by the legislature.

"America can breathe a sigh of relief," Schumer said in remarks to the Senate.

'TIME IS A LUXURY'

Republicans had blocked passage of any debt limit increase until they locked in some wide-ranging spending cuts in a move they said would begin addressing a rapidly escalating national debt.

Biden instead pushed for tax increases on the wealthy and corporations to help address the growing debt. Republicans refused to consider any sort of tax hikes.

Both parties walled off the sprawling Social Security and Medicare retirement and healthcare programs from cuts, and McCarthy refused to consider reducing spending on the military or veterans.

That left a somewhat narrow band of domestic "discretionary" programs to bear the brunt of spending cuts. In the end, Republicans won about $1.5 trillion in reductions over 10 years, which may or may not be fully realized. Their opening bid was for $4.8 trillion in savings over a decade.

Treasury technically hit its limit on borrowing in January. Since then it has been using "extraordinary measures" to patch together the money needed to pay the government's bills.

Biden, Yellen and congressional leaders all acknowledged that triggering a default for lack of funds would have serious ramifications. Those included sending shock waves through global financial markets, possibly triggering job losses and a recession in the United States and raising families' interest rates on everything from home mortgages to credit card debt.

The Republican-controlled House passed the bill on Wednesday evening in a 314-117 vote. Most of those who voted against the bill were Republicans.

"Time is a luxury the Senate does not have," Schumer said on Thursday. "Any needless delay or any last-minute holdups would be an unnecessary and even dangerous risk."

Among the amendments debated were ones to force deeper spending cuts than those contained in the House-passed bill and stopping the speedy final approval of a West Virginia energy pipeline.

COBBLED OVER WEEKS

Republican Senator Roger Marshall offered an amendment to impose new border controls as high numbers of immigrants arrive at the U.S.-Mexico border. His measure, he said, would "put an end to the culture of lawlessness at our southern border."

The Senate defeated the amendment, however. Democrats said it would strip away protections for child migrants and rob American farmers of needed workers.

Some Republicans also wanted to beef up defense spending beyond the increased levels contained in the House-passed bill.

In response, Schumer said the spending caps in this legislation would not constrain Congress in approving additional money for emergencies, including helping Ukraine in its battle against Russia.

"This debt ceiling deal does nothing to limit the Senate's ability to appropriate emergency supplemental funds to ensure our military capabilities are sufficient to deter China, Russia and our other adversaries, and respond to ongoing and growing national security threats, including Russia's evil ongoing war of aggression against Ukraine," Schumer said.

The bill was cobbled together over weeks of intensive negotiations between senior aides for Biden and McCarthy.

The main argument was over spending for the next couple of years on discretionary programs such as housing, environmental protections, education and medical research that Republicans wanted to cut deeply.

The nonpartisan Congressional Budget Office estimated the bill would save $1.5 trillion over 10 years. That is below the $3 trillion in deficit reduction, mainly through new taxes, that Biden proposed.

© Reuters. U.S. Capitol police stand outside the Capitol building as the Senate votes on debt ceiling legislation to avoid a historic default at the U.S. Capitol in Washington, U.S., June 1, 2023. REUTERS/Evelyn Hockstein

The last time the United States came this close to default was in 2011. That standoff hammered financial markets, led to the first-ever downgrade of the government's credit rating and pushed up the nation's borrowing costs.

There was less drama this time as it became clear last week that Biden and McCarthy would find a deal with enough bipartisan support to get through Congress.

Latest comments

Old fart one gave old fart two the thumbs up
Both sides claim victory. We will not spend any more than used to, but we still overspend. Congratulations. It's a win. I'm being sarcastic here.
Praise The Lord God Almighty Who Is High And Lifted Up Above The 🌏Earth And Heavens !
Lots of overtime for those folks working at the Printing Office. Bet they'll be renting some warehouse space to store those pallets of Franklins. Ahh ... The smell of freshly printed money.
“Historic default”. 🤣🤣🤣🤣. There wouldn’t have been any default. Pure scare tactic. “We have to barrow more so we can pay our debts”. And people fall for it every time.
what can people do?
Everything is awesome!
Yeah Debt Rally
if there not a debt downgrade due to the deal, the rest of the world should consider banning us rating agencies based on downgrade of other countries and thier reasoning this deal should guarantee a downgrade it's shows both sides have absolutely no fiscal responsibility at all.
another anti-American post a further downgrade to Russian financial instruments should be in order. the Russian authoritarian government has been manipulating their markets for some time and can't be trusted.
👏🏽👏🏽👏🏽 🤠
Such a bullshit story. The government cannot default per the constitution. The house of representatives controls the purse, the president signs the budget. The house doesn't work for the president. If O'biden doesn't sign, and the house doesn't budge, the president is in violation of the law and can be impeached. Most of you half-wit need a remedial 6th grade civics class.
Despite his lecturing, he also unaware that this was not a budget.
There is no language or stipulations in the 14th amendment that gives the President any authority to do that.
"The government cannot default per the constitution."  -- where in the US Constitution did it mention anything about default, or not allowing it?
so is the market going to be bullish today 😉?
🕵🏽‍♂️📈📉 Nonfarm Payrolls and Unemployment rate.
this is the monkey show presented by all American politicians. how pathetic the American people would be?
russia and china politicians, now there's a monkey show....
ZERO. There was zero chance of a debt default.
😲🤭
well for me it was always a legal matter. with child support, fraud, even when getting hacked all the time . all I could think about was being with my daughter.i knew the risk I was taking will being on parole in Texas I had to get away so I could get the AI an Google finance up and running. I showed what I can do while not knowing how to read too well... now you can get me programming and stuff all I ask is that my family and my daughter get financial and leagle support for all of my people . your friend Heriberto Suarez. R
what effect on silver?
Borrowing to survive, borrowing to pay off other debts, the cycle continues. Just because they are too big to fail? Isn't this similar to a ponzi scheme?
only difference is that everyone (country) is doing it and we are one of the best if not the best at doing it. currency is relative if everyones currency is going down all you gotta do is make sure yours goes down the least or slowest.
we all must acknowledge this money doesn't exist. They're going to print it which eventually ads to inflation not just in US but across the globe
so it pretty much cushions its effect.
hooray! probably see you us a -2% day tomorrow
huh? that -2 would be if it didnt pass maybe -99 even.
Untimately it doesn’t even come close to closing the deficit. Until they face the fact that even Social Security and Medicare will have to face “cuts” it will not balance the budget. Even tax increases won’t do it. We spend 23+% of GDP and we have never gotten over 20.5% of GDP in taxes. Spending must be reduced.
Such ignorance. Social Security is separate from general fund and does not contribute to the deficit. You don't know what you are talking about, so your opinions are worthless.
any effect gold prices ???
Gold could fall today and moreover today is NFP, will shows the unemployment rate in the country
You people in the media are all the same. Averting default?? How would a country that takes in 5 trillion per year in tax revenue not be able to pay the 500 billion per year in interest expense.??? You are so full of it
So now there are 51 senators who agree to a debt ceiling? just need 9 more people until this gets passed?
Budget bills can’t be fllibustered and fillbuster only prevents a vote to end debate and then a final vote. So in this case it passed.
How many of the no on the republican side took the order from Trump to say NO ?
The republicult will do whatever it takes to prevent the top 10% from ever having to pay any taxes
I.d.i.o.t. The top 10% pay over half the taxes in this country.
id...iot ,,, the top 10 control 81% of the wealth
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