The United States staved off a catastrophic credit default Thursday after Democrats accepted an offer from the Republicans to raise the debt limit for two months.
Chuck Schumer, who leads the Democrats in the Senate, announced the breakthrough on Thursday after hours of negotiations in Congress going into the early hours of the morning.
With the threat of a default just 11 days off, Republican Senate Minority leader Mitch McConnell offered the deal as his party was preparing to vote against House-passed Democratic plans for a hike in the nation’s borrowing cap of more than a year.
The temporary compromise still has some hurdles to clear.
Democrats will use the brief lull in hostilities to work on their multi-trillion dollar social spending package, the cornerstone of President Joe Biden’s economic agenda.
McConnell is hoping to use Biden’s sweeping proposals to campaign against “reckless” Democratic spending and will bank on the prolonged debt uncertainty counting in Republicans’ favor ahead of next year’s midterm elections.
“The Senate is moving toward the plan I laid out yesterday to spare the American people a manufactured crisis.”
US Treasury debt is considered the world’s benchmark safe asset and its interest rates are the basis for the pricing of financial products and transactions across the planet.
McConnell had been insisting since July that Democrats suspend the debt limit with no Republican help, through a laborious and partisan process known as “budget reconciliation.”
But he reportedly became skittish over Democratic calls Wednesday to solve the issue via the “nuclear option” of modifying the filibuster — which normally requires 60 votes to pass legislation.
The legislative Band-Aid agreed Thursday buys the Democrats who control the White House and both chambers of Congress time to pass a longer term debt limit extension, although they are still refusing to pursue reconciliation.
But the olive branch has left some senators on both sides of the aisle — and high-profile observers from near and far — unsatisfied.
“Two months of continuing to argue about this does not resolve uncertainty,” Jared Bernstein, of Biden’s Council of Economic Advisers, told CNN.
“Looks like Mitch McConnell is folding to the Democrats, again,” Trump said ahead of the deal being finalized.
Originally published as United States steps back from debt cliff… for now