President Barack Obama announced on Sunday night that lawmakers struck a bipartisan debt deal to help avert the first traditional sovereign debt default in U.S. history. While he admitted that the process took considerably longer than it should have, he believed the deal would pass in Congress, even with clear opposition from both political parties.
Basics of Debt Deal
On Sunday night, Obama announced that “the leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default.” This announcement came shortly after Sens. Harry Reid and Mitch McConnell made their own announcement that a framework for the debt plan had been agreed upon.
While all of the specifics of the deal have yet to be released, the agreement is said to include raising the debt ceiling from its current $14.3 trillion limit, something that has been recommended by most lawmakers and officials.
Also, the plan includes upfront spending cuts in the range of roughly $1 trillion. A special congressional committee would then have to recommend additional spending reductions. This would occur no later than Thanksgiving.
Will Lawmakers Pass the Deal?
In his Sunday night announcement, Obama cautioned that lawmakers still have work to do to get the plan passed on Monday.
He asked rank-and-file members of Congress to support the measure, especially with the expectation that a significant number of the body’s most conservative Republicans and liberal Democrats were expected to vote against the bill.
If, for some reason, a deal isn’t passed, lawmakers will have Aug. 2 to come to a decision before defaulting. After this time, automatic defense and Medicare budget cuts would take place, Social Security checks may not be mailed on Aug. 3, the U.S. could lose its AAA credit rating and the global economy could spiral into a financial crisis.
The threat of default has already taken its toll on the financial markets. On Friday, the Dow Jones Industrial average dropped for sixth straight day. This caused investors to lose $700 billion.
There’s no doubt that fears of impending turmoil will mean investors–and the rest of the world–will be watching for news that Congress has passed the bill and finally laid the debt debate to rest. A vote is expected to occur sometime today.
