US Senate approves deal to raise debt ceiling – 6/2/2023 – Market

The United States Senate approved this Thursday (1st) the bill that increases the country’s debt ceiling and avoids a default, scheduled for next week, which would have global economic repercussions.

The text approved by 63 votes to 36 eliminates the limit of US$ 31.4 trillion (R$ 156.8 trillion) for two years, giving President Joe Biden respite from having to negotiate it again next year, amid to the campaign for re-election.

“We are avoiding default tonight,” Senate Majority Leader Chuck Schumer said as he led the legislation in his 100-member chamber.

Schumer and his fellow Republican, Minority Leader Mitch McConnell, made good on their promise to do what they could to expedite the bill negotiated by Biden and Republican House Speaker Kevin McCarthy. “The country can breathe a sigh of relief,” Schumer said.

The bill also keeps non-military spending at the same level for fiscal year 2024 (which runs from October this year to September next) and limits spending increases to 1% in fiscal year 2025, regardless of inflation in the period. . Military spending, on the other hand, could grow above that limit in the next two years.

The lack of a solution in recent weeks has spooked financial markets, forcing the United States to pay record interest rates on some bond sales. A possible default would drop US stock markets by up to 45%, according to the White House, and could trigger an immediate recession.

Only last Saturday night did the president of the House and the White House reach the agreement voted on this Wednesday. The project, however, was resisted by both Republicans and Democrats until the last minute.

The last time the country came this close to default was in 2011, under Barack Obama, when the Senate and House were led by Republicans.

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UNDERSTAND THE DISCUSSION

What is the debt ceiling? It is the total amount of money the US government is allowed to borrow via US Treasuries to meet financial obligations. As the country’s budget is in deficit, it needs to borrow huge amounts of resources

The US has hit the ceiling. And now? The limit was technically reached on January 19th. Since then, the Treasury has used “extraordinary measures” to meet its obligations. These alternatives, however, run out on June 5 according to the Treasury Department

What’s in game?If the government runs out of money, it will no longer be able to issue debt and pay its bills. He could end up defaulting on his debts if he fails to make payments required by bondholders. This would be devastating for the US and the global economy.

What are the next steps?The approved project now needs to be on President Joe Biden’s desk by next Monday (5) for the government to avoid a default.

With Reuters