On Wednesday night, The House of Representatives approved a deal enabling the US to raise its debt ceiling for more than two years.
The increase in debt ceiling means that the US will be able to borrow more money during the next two years.
This move comes just days before the US Government starts defaulting on its debt. According to the projections, the Government is expected to reach its debt limit on June 5th, meaning that the Senate has only a few days to pass the bill before President Joe Biden can sign it into law.
The deal was reached after long rounds of negotiations between the Republicans who control the lower chamber of Congress and the Democrats who control the upper chamber and the White House. In a statement, President Biden thanked House Speaker Kevin McCarthy for showing good faith in the negotiations.
In exchange for supporting the bill that raises the debt ceiling, the Republicans were able to push President Biden and the Democrats to support a list of conservative priorities, for which they were initially reluctant. The parties at the negotiation table agreed on a spending cap that will hold expenditures flat for 2024 and impose new limits for 2025 while preserving spending on social security and medical care and increasing military expenditures by 3%. The agreement intends to incentivize the unemployed to find jobs by increasing the work requirements to qualify for food assistance.
The bill now requires 60 votes in the Senate, where Democrats hold only a slim majority 51-49. A potential failure to pass the bill would mean that the Government will not be able to borrow more money and not be able to pay all its bills. There are important categories of government obligations that would risk payment, including social security, medical care, education programs, federal and military wages, interest on treasury bills, and highway administration.
A potential US default on its $31.4tn debt would not impact the US economy only but would cause turbulence in the global financial system.