FINALLY: US Congress passes bill to reopen government and raise debt ceiling
A possible default by the world’s biggest economy was averted Wednesday as the United States (U.S.) Senate approved a deal to end the government shutdown.
Republican and Democratic Senate leaders assiduously worked out a deal to reopen the government and thereby end the over two week stand-off that assailed the global economy and put the markets in dire straits.
Both the Senate and House of Representatives would have to take special steps to get the legislation passed and forwarded to President Barack Obama’s desk before the government’s ability to borrow money expires today.
Legislators dropped hints on their way home on Tuesday that Senate Majority Leader Harry Reid and his Republican counterpart, Mitch McConnell, would quickly finalise a deal that had been in the works all week.
U.S. stocks opened sharply higher on expectations that Washington DC would end its partisan fiscal impasse. The benchmark Dow Jones Industrial Average jumped 200 points.
According to sources, under the deal, the Senate would reopen the government, funding it until January 15. It would also raise the debt limit until February 7 to avert a possible default on U.S. debt obligations for the first time.
It also would set up budget negotiations between the House and Senate for a long-term spending plan, and would include a provision to strengthen verification measures for people seeking government subsidies under Obama’s signature health care reforms.
The focus shifted to the Senate after House Republicans failed on Tuesday to come up with a plan, which their majority could support, stymied again by demands from tea party conservatives for outcomes unacceptable to Obama and Senate Democrats, as well as some fellow Republicans.
Today marks the day the Treasury Department will run out of special accounting maneuvers to keep the nation under the legal borrowing limit. From that point on, it would have to pay the country’s incoming bills and other legal obligations with an estimated $30 billion in cash, plus whatever daily revenue comes in.
The expectation was that the Treasury would be able to pay bills in full for a short time after today, but exactly how long remained unclear.
According to the best outside estimates, the first day the government will run short of cash could come between October 22 and November 1.
The prospect of the U.S. government running out of money to pay its bills and eventually finding it difficult to make payments on the debt itself, has economists around the world prophesying dire consequences.
Mutual funds, which are not allowed to hold defaulted securities, may have to dump masses of U.S. treasuries.
Ratings agency Fitch fired a warning shot on Tuesday that it might downgrade the country’s AAA credit rating to AA+ over the political brinksmanship and bickering in Washington that have brought the government to this point.
That could help raise interest rates on U.S. debt, putting the country deeper into the red.
Rating agency Standard & Poor’s cut the U.S. credit rating from AAA to AA+ after the 2011 debt ceiling crisis. Moody’s still has the U.S. rated AAA.
Investors around the world appeared to be sitting on the sidelines yesterday, waiting for the day’s debate.
Asian markets ended with mixed results, European markets were down slightly Friday afternoon and U.S. stock futures — frequently taken as an indicator for how U.S. markets will open — were up marginally before trading began yesterday.
Several options were being weighed before the eventual breaking of the deadlock.
Some scholars, for instance, had suggested that the 14th Amendment to the Constitution gives Obama an emergency brake to stop the default by ignoring what Congress does and borrowing in spite of having reached the debt ceiling.
Section four of the amendment states: “The validity of the public debt of the United States, authorised by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
Obama has rejected such claims, the Congressional Research Service has said. And other scholars said that by invoking the 14th Amendment in this way, the President would risk breaking other laws.
Disarray among House Republicans caused confusion on Tuesday, with Boehner having to pull a proposed agreement from the floor because conservatives found it too weak.
The House proposal dropped some provisions on Obamacare but prohibited federal subsidies to the President and his administration officials as well as federal lawmakers and their staff receiving health insurance through the Affordable Care Act programs.
It also would have forbidden the Treasury from taking what it calls extraordinary measures to prevent the government from defaulting as cash runs low, in effect, requiring hard deadlines to extend the federal debt ceiling.
Hints that the standoff would be resolved emerged early in the week, with the softening of stance from some opposition members.
For instance, Senator John McCain, who was the Republican 2008 presidential nominee, was quoted by the New York Times as saying: “Republicans have to understand we have lost this battle, as I predicted weeks ago, that we would not be able to win because we were demanding something that was not achievable.”
The White House had refused to negotiate over its healthcare law, pointing out that it was passed in 2010, subsequently validated by the Supreme Court and was a central issue in the 2012 presidential election, which Obama won comfortably.
Stalemates between Congress and the White House over spending have existed since the government began, but they became more severe during the 1970s, leading to an increased number of stopgap spending agreements. From that ensued increasingly protracted fights over how to fix those spending gaps, and the spending bills became proxies for other policy battles.
Speaking recently on the shutdown’s impact on Nigeria and other African countries, a U.S. presidential aide assured of continued policy support in investment and funding regardless of budget disagreement in its congress.
Assistant secretary for African Affairs, Linda Thomas-Greenfield, told African journalist via a live web chat that key U.S. agencies would still provide economic, developmental and humanitarian assistance to the continent.
She said: “The (U.S.) State Department and the United States Agency for International Development (USAID) are major funders on the continent of Africa and national security agencies.
“And because of that we are able to continue operations. Most of our funding right now is 2013 funding and that funding will continue.”
She assured that the U.S. agencies were committed to an evolving model of partnership with governments for African growth.
The American presidential aide underlined her country’s collaboration with others in combating insurgents and terrorist groups like Boko Haram.
She noted that the three major developmental policies announced recently by Obama namely, Power Africa, Trade Africa and the Young African Leaders Initiative (YALI), were aimed at boosting electricity supply, trade as well as skills and capacity of young people on the continent.
