US Senate reaches short-term deal on debt limit, averting crisis

Democrats and Republicans in the United States Senate have agreed to a short-term increase in US borrowing authority, averting a potential financial crisis.

The Senate voted 50-48 on Thursday to temporarily raise the federal government’s $28.4 trillion debt limit by $48bn, putting off a decision on a longer lasting remedy until December.

The vote, which followed an announcement from top legislators that a deal had finally been reached between the two parties, came after legislators had been at odds on Capitol Hill for several days, with Democrats pushing to raise the debt limit in the face of staunch opposition by Republicans, who refused to go along with the proposal because they oppose President Joe Biden’s spending plans.

Top US officials had warned the government would run out of cash and be unable to pay its debts by October 18 unless legislators passed a law raising the amount of debt the Treasury Department can issue.

The legislation will now move to the Democratic-controlled House of Representative, where it is all-but-assured to pass, before being signed into law by Biden.

“President Biden looks forward to signing this bill as soon as it passes the House and reaches his desk,” White House press secretary Jen Psaki said in statement on Thursday.

“As we approach the coming months, we hope that even more Republicans will join Democrats in responsibly addressing the debt limit instead of choosing default or obstruction.”

The breakthrough in the political standoff emerged on Wednesday after top Senate Republican Mitch McConnell said Republicans were open to a temporary hike after twice blocking Democrats’ attempts to raise the US debt limit through 2022.

That offer came after Biden raised the possibility of bypassing the Senate’s filibuster rule requiring 60 of the 100 members to agree on most legislation.

Speaking after the vote, Senate Majority Leader Chuck Schumer said “Republicans played a dangerous and risky partisan game and I am glad that their brinksmanship did not work.”

Not all Republicans were happy with McConnell’s move, and it took long negotiations behind closed doors to secure enough Republican support advance the measure.

Republican Lindsey Graham called McConnell’s move “a complete capitulation.”

The US government routinely operates at a deficit and must borrow in public financial markets to maintain cash flow. Under US law, only Congress can act to increase the amount of debt the US Treasury can issue.

McConnell said that Republicans and Democrats “negotiated through the night in good faith” to reach the deal.

“The Senate is moving forward with the plan I laid out yesterday to spare the American people a manufactured crisis,” McConnell he said on Thursday before the vote.

With the US Treasury expected to run out of money as soon as October 18, US officials had warned a failure to lift the US debt ceiling would rattle financial markets worldwide and could trigger a global recession.

“We are steering into a catastrophe,” US Treasury Secretary Janet Yellen said at a meeting of CEOs with Biden at the White House on Wednesday.

Biden met leaders of the biggest US banks and major associations to discuss increasing the debt limit in a push to raise the pressure on Republicans.

“It doesn’t have to be this way. My Republican friends need to stop playing Russian roulette with the US economy,” Biden, who has been working to win approval of his ambitious tax and spending agenda in the narrowly divided US Congress, said at that time.