US government shutdown averted? Legislators agree on debt limit

US President Donald Trump announced Republicans and Democrats struck a deal to halt the government's borrowing.

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    Speaker of the US House of Representatives Nancy Pelosi said the bipartisan budget agreement would require approval by Congress, a vote in the Senate and President Trump's signature in order to become law [Al Drago/Bloomberg]
    Speaker of the US House of Representatives Nancy Pelosi said the bipartisan budget agreement would require approval by Congress, a vote in the Senate and President Trump's signature in order to become law [Al Drago/Bloomberg]

    President Donald Trump announced a bipartisan deal to suspend the U.S. government's borrowing limit and boost spending levels for two years.

    "I am pleased to announce that a deal has been struck with Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer, Speaker of the House Nancy Pelosi, and House Minority Leader Kevin McCarthy - on a two-year Budget and Debt Ceiling, with no poison pills," Trump said on Twitter. "This was a real compromise in order to give another big victory to our Great Military and Vets!"

    The House would have to approve the agreement this week before members leave July 26 for a six-week recess. The Senate can put it to a vote next week. The measure will need Trump's signature to become law, and he didn't explicitly say he'll sign it.

    "Today, a bipartisan agreement has been reached that will enhance our national security and invest in middle class priorities that advance the health, financial security and well-being of the American people," Pelosi and Schumer said in a joint statement.

    The broad agreement, finalized after weeks of negotiations between Pelosi and Treasury Secretary Steve Mnuchin, would eliminate the risk that the government could miss payments as early as September. It would also cancel automatic cuts that would have reduced domestic spending by $55 billion and military spending by $71 billion compared with 2019 levels.

    Both sides can claim victories in the deal, though neither got everything they put on the table at the outset of negotiations. Even before it was announced, Republican and Democratic lawmakers complained about aspects of the agreement.

    It would raise the current budget caps by $320 billion over two years, $30 billion less than Democrats sought. Trump would get only about half of the $150 billion in savings his administration sought.

    Shutdown Risk
    With the new spending and limited savings, the deal will likely push the annual budget deficit over $1 trillion next year.

    The deal could still hit snags in Congress as members of both parties analyze the compromise. The most notable resistance to the agreement came from Vermont Senator Patrick Leahy, the ranking Democrat on the Senate Appropriations Committee, who said it gave Trump too much ability to build a border wall by moving funds around.

    Even if the deal is signed into law, the risk of a government shutdown on Oct. 1 remains. Congress must still pass spending bills adhering to the spending caps to fund the government in the new fiscal year. A fight over border wall funding led to the longest government shutdown in modern history that ended early this year.

    The Treasury Department has been using so-called extraordinary measures to meet debt obligations since March 2, when the U.S. reached its $22 trillion limit on borrowing. Under one of the Treasury Department's most conservative estimates, the U.S. would have risked defaulting before lawmakers are scheduled to return from their recess on Sept. 9.

    A default on interest payments or federal salaries would have severe economic ramifications, shaking confidence in the U.S. government sending shock waves through global markets.

    SOURCE: Bloomberg