Bipartisan lawmakers in the US House of Representatives have successfully approved a crucial debt ceiling agreement between President Joe Biden and House Speaker Kevin McCarthy, effectively averting the risk of a government default. The Financial Responsibility Bill, which received 314 votes in favor and 117 votes against, solidifies the agreement reached between Speaker McCarthy and President Biden to suspend the $31.4 trillion debt ceiling. This significant step ensures that the US government can avoid the potentially disastrous consequences of default.
The agreement is anticipated to be approved by the US Senate this week and subsequently presented to President Biden for his signature by June 5, which coincides with the point at which the government would have run out of funds to pay its bills.
Following the successful passage of the bill, Speaker McCarthy emphasized its importance in getting America back on track. He stated, "Passing the bill is an important first step to getting America back on track."
President Biden also expressed his satisfaction with the progress made, stating in a released statement, "The House of Representatives has taken an important step toward preventing default and protecting our nation's economic recovery." He added that the agreement represents a compromise between the two parties and the only viable way forward.
Notably, although the deal faced opposition from 71 hardline Republicans, it received support from 165 Democrats, ultimately facilitating its swift passage. Presently, the Republicans control the US House of Representatives with 222 seats, while the Democrats hold 213 seats.
According to the Congressional Budget Office, the agreement is projected to generate $1.5 trillion in savings over a decade, falling short of the $4.8 trillion initially targeted by Republicans in their proposed bill, which was passed in the House of Representatives in April but faced opposition from the White House and the Senate.
The negotiations for the public debt ceiling reached a preliminary agreement between Speaker McCarthy and President Biden on May 27 after weeks of deliberations. The final version of the agreement, encompassing 99 pages, was solidified on May 28. It includes a two-year suspension of the debt ceiling, expenditure limitations during this period, the retrieval of unused funds from the Covid-19 support fund, expedited licensing for select energy projects, and expanded eligibility for welfare programs aimed at assisting the less fortunate.
The protracted impasse in debt ceiling negotiations between the House and the White House had previously sent shockwaves through financial markets, causing stock market instability and forcing the US to pay exorbitant interest rates on certain bond sales. Economists warn that defaulting would have had far more severe consequences, potentially plunging the country into recession, destabilizing the global economy, and leading to a sharp increase in unemployment.
The last time the US faced the prospect of default was in 2011, when Democrats controlled the presidency and the Senate, and the House was under Republican control. Congress ultimately managed to avert a default; however, the economy experienced significant turmoil, including the first-ever downgrade of the US credit rating and a substantial equities sell-off.