“US House of Representatives suspends debt ceiling temporarily to prevent national bankruptcy and maintain economic stability”

2023-06-01 02:00:00

Washington After weeks of arguing about the record deficit in the United States, the US House of Representatives decided to temporarily suspend the debt ceiling. On Thursday night, the Chamber of Congress voted 314 votes in favor of a legislative package that would overturn the debt limit for two years and at the same time provide for spending cuts. 218 votes were required for a majority. 117 people voted against.

Next, the legislative package still has to be voted through the US Senate before it can be signed into law by President Joe Biden. “I urge the Senate to pass the bill as soon as possible so our country can continue to build the strongest economy in the world,” Biden said.

Swift action is needed to avert the first default in US history. Treasury Secretary Janet Yellen estimates that the US government will run out of cash to pay off debts as early as June 5.

A national bankruptcy would have unpredictable consequences for the US economy and the global economy. If the debt ceiling is temporarily suspended, the national bankruptcy can be prevented.

The American national debt has been growing rapidly for decades. At 31.4 trillion US dollars, it is currently about as high as the annual economic output of the USA. “The agreement suspends the cap until January 2025,” reads the 99-page law approved by the House of Representatives. If the Senate also votes yes, that gives both US parties scope to keep the explosive topic out of the presidential election campaign.

Congress has been split since the November 2022 midterm elections: Democrats hold a narrow majority in the Senate, Republicans in the House of Representatives. However, there is resistance to the debt limit package in both parties and chambers: Dozens of right-wing Republicans accused the Republican speaker in the House of Representatives, Kevin McCarthy, of having negotiated poorly.

Several prominent conservative groups, such as the Club for Growth and the Heritage Foundation, also put massive pressure on MPs. They mobilized against the debt deal on social networks and declared that individual Republicans would be publicly evaluated according to their voting behavior. Parts of the left wing of the Democrats in the House of Representatives also rejected the agreement and criticized the planned cuts in social spending.

Voting could drag on into the weekend

The debt ceiling package needs at least 60 out of 100 votes in the Senate to pass. “We have no room for error,” warned Senate Majority Leader Chuck Schumer, referring to the tight schedule before the impending default. He is preparing the senators for a possible weekend vote if opponents of the debt deal want to delay the process. This would be possible, for example, through procedural tactics.

Some Republican senators criticize that the targeted defense spending package is too low in view of the Ukraine war and China’s military build-up. “The biggest winners from this military budget are China and Putin,” Senator Lindsey Graham said.

Democratic Senator Elizabeth Warren criticized the debt deal for other reasons. “We are not building a stronger future as a nation by helping tax dodgers and taking food from starving people. That’s just wrong,” she said.

>> Read here: Debt dispute and inflation weigh on US stock exchanges – Biden before Congress vote: Everything according to plan

The compromise is intended to effectively freeze the size of the federal budget, which the Democrats under Biden actually wanted to increase. According to an analysis by the bipartisan Congressional Budget Office, domestic spending will remain roughly the same in 2024 and may only increase by 1 percent in 2025. The budgets of many federal authorities and ministries are to be adjusted for this.

The package would reduce debt accumulation, or budget deficit, by about $1.5 trillion over a decade, the analysis said. Because certain domestic expenses are to be reduced and capped for two years. The Republicans were able to enforce that recipients of certain social benefits such as food stamps must prove they have a job.

$1.4 billion is also to be cut from the budget for tax investigators and unused funds from the Covid rescue packages are to be recovered. The Democrats actually wanted to increase state revenues by taxing the rich more heavily. The Republicans opposed it.

Democrat Joe Manchin to get a pipeline

The legislative package also contains interesting details for the energy industry: Approvals for new energy projects are to be accelerated. For example, environmental assessments should no longer take an average of five years, but only two years. Both clean and fossil energies should benefit from the faster processes.

Jason Grumet, president of lobby group American Clean Power, said the agreement was an “important start for much-needed reforms to improve permit efficiency.” Representatives of the fossil energy industry also described the agreement as a good first step.

One senator was particularly happy about the initiative: Democrat Joe Manchin has been fighting for years for permission to build a natural gas pipeline in his state of West Virginia. The Mountain Valley Pipeline is designed to transport gas produced in the Appalachian Mountains, but opponents of the project have so far successfully blocked it. Now the pipeline should finally be finished, according to the legislative package on the debt limit.

More: Guest Commentary by Kenneth Rogoff – The debt ceiling debacle is not over yet

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