Global money markets and the White House heaved a sigh of relief as the Biden-McCarthy New Deal helped break the deadlock resulting in a bipartisan approach to passing the bill in the Congress to raise the borrowing limit beyond the $31.4 trillion it breached some months ago.
Many governments of different countries hold US Treasury bonds as reserves for their economy and enjoy interest payments from the US Treasury.
Any failure to pass the bill would have resulted in a global economic crisis, economists said.
The House passed the debt ceiling bill on Wednesday night just days ahead of the June 5 deadline to avoid a catastrophic US default. Even as White House had initiated a Plan B simultaneously, if right wing hardliners refused to cooperate, heeding Donald Trump’s call to vote No, of invoking the 14th amendment to bypass the Congress. But luckily that did not come to that pass.
The House voted in a bipartisan manner to pass Speaker Kevin McCarthy’s debt ceiling deal with President Joe Biden by a 314-117 vote. The bill now goes to the Senate ahead of Monday’s deadline to act or risk a catastrophic default on the nation’s debt.
As Democrats hold the majority and the VP had a tie-breaking vote, passage is certain. Then it’s a matter of time that the President signs of on the bill to give a reprieve for the US Treasury which can take time, if needed, to prioritise interest payments to stakeholders.
The vote was an acid test for McCarthy, who only months ago narrowly won the speakership in January and had faced threats to his gavel from far-right members, NBC reported.
Hard-line Republicans had rubbished the Biden-McCarthy agreement urging fellow members to vote NO, but the bill passed with bipartisan support after it cleared a key procedural vote earlier today. When it becomes law, the bill would suspend the debt ceiling for two years, through the next presidential election in 2024 and onto 2025, allowing for some modest spending cuts.
McCarthy told a news conference he’s likely to seek more spending cuts from President Biden and new work requirements as Democrats have voted for them as per the deal.”It’s wonderful that they voted for it, because they are now on record, so they can’t sit there and yell, ‘This isn’t good.’ So I’ll bring something back.
“Let’s get the rest of the IRS agents, let’s get the rest of the work requirements, let’s cut more, because we are in a big debt,” McCarthy said. “This is fabulous. This is one of the best nights I’ve ever been here. I thought it would be hard. I thought it’d be almost impossible just to get to 218. Now I’ve found there’s a whole new day here. We’ve woken them up,” McCarthy claimed triumphantly after months of negotiations with the White House.
McCarthy didn’t talk to former President Donald Trump, known for his hardliner approach, and who had urged Republicans not to enable the passage of the bill if the GOP members did not get all that they wanted in the deal to allow the government to raise the borrowing limit.
Chuck Schumer, the Senate Majority Leader, has placed the debt limit bill on the Senate calendar to set off the process for its passage by the senators to send it directly to the President Biden’s desk for a sign off to enact into law to allow government to borrow more money to pay interest to treasury bond owners across the globe and payouts to domestic welfare programmes including education and senior citizens and health programmes.
White House had put a plan B in action in case the high-stakes talks with Republicans to raise the borrowing limit collapsed and an economic disaster ensued. The White House was considering the unprecedented step of bypassing Congress altogether and invoking the Constitution’s 14th Amendment, which states that “the validity of the public debt… shall not be questioned.”
President Biden was tensed up as time fell short for the inevitable court challenge to play out if he went down that road. But the idea was serious – so serious that the White House counsel’s office consulted at least two outside legal experts about the 14th Amendment just days before the deal was announced, people in the know said.
A lead House negotiator in the showdown with Biden, Rep. Garret Graves, told reporters on Wednesday that had Republicans spurned negotiations and let the nation default on its debt, it would have resulted “in the President trying to invoke the 14th Amendment”, as well as a missed opportunity for Republicans to press for spending cuts.
But that break-glass option wouldn’t be needed.