Obama raises the ceiling

2011-08-01 07:38

Washington – US President Barack Obama announced a deal late yesterday with congressional leaders that would allow the federal debt limit to be raised before the Treasury runs out of money.

The $2.4-trillion increase must still be approved by the Senate and the House of Representatives before tomorrow’s deadline, when Obama’s Treasury officials said they could run out of money to pay bills, possibly including pensions and bond payments.

The current cap in the national debt is $14.3 trillion. The hike in the debt limit would be enough to keep the government running past next year’s November elections, which was a key Obama demand.

He said the agreement will “allow us to avoid default and end the crisis Washington imposed on the rest of America”.

The deal was the result of last-minute talks between Obama’s Democrats, who hold a majority in the Senate, and Republicans who control the lower house.

The two chambers appeared set to vote today.

“There are still some very important votes to be taken by members of Congress,” Obama told reporters in the White House press room.

“The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default – a default that would have had a devastating effect on our economy.”

Republicans, pushed by their conservative Tea Party faction, had sought steep cuts in federal spending before agreeing to allow more borrowing that would further increase the national debt.

“This process has been messy,” Obama said. “It’s taken far two long.”

He said the first step of budget cuts would slash spending by about $1 trillion over the next 10 years.

The proposed cuts “wouldn’t happen so abruptly that they’d be a drag on a fragile economy,” Obama said.

A second round of reductions would cut another $1.5 trillion by 2021.

A congressional panel would be formed to determine the deficit reductions to be made by the end of the year, with a provision that failure to find the called-for $1.5 trillion would automatically slash spending across all budget areas.

Designed to motivate Congress to act in the second round, the automatic provision would include the Medicare health-care programme for the elderly – a pillar of the Democrats’ social-welfare policies – and the Defence Department, which is usually protected by hawkish Republicans.

As the debate over deficit reduction continues, Obama said he would continue to argue in the coming months for a “balanced approach”, which he said must include increasing sources of government revenue.

Republicans have largely opposed both higher-income tax rates and repeal of certain costly tax deductions.

“This compromise does make a serious downpayment on the deficit reduction we need and gives each party a strong incentive to get a balanced plan done before the end of the year.”

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