WASHINGTON — The Senate on Tuesday passed legislation that heads off an unprecedented U.S. financial default and begins the process of curbing the country’s spiraling debt. With less than 12 hours to go before the deadline, President Barack Obama promised to sign the measure immediately.
After weeks of some of the nastiest political battles in recent U.S. history, both the Senate and House of Representatives, which voted Monday night, easily adopted the plan that raises the current $14.3 trillion cap on U.S. borrowing, which expires at midnight. In tandem with increasing the borrowing limit, legislators approved more than $2 trillion of budget cuts over the upcoming decade.
The administration had said that without the new borrowing authority, the government could not pay all its bills. Administration officials say a default would ensue that would severely damage the global economy.
Because the deal prescribes significant cuts to U.S. federal spending, it was widely expected to buoy global investors and diminish chances of Treasury bonds undergoing a credit downgrade. That would increase the cost of borrowing both for the government and consumers.
But as the measure cleared its last legislative hurdle, a 74-26 vote of approval in the Senate, and headed to Obama for certain signature into law, world markets were down, the U.S. Dow Jones Industrials off for an eighth straight day.
Investors were unnerved by spreading debt troubles in Europe and a decline in U.S. consumer spending to the lowest level in two years. The bad news signalled a further slowing of the fragile U.S. economic recovery and snuffed out optimism over the hard-fought vote in Congress.
The compromise deal deeply angered both conservative Republicans and liberal Democrats. Many Republicans contended the bill still would cut too little from federal spending; many Democrats said much too much. Still, Republican lawmakers supported the compromise, 174-66, while Democrats split, 95-95
The measure was crafted through the crucible of one of the United States’ nastiest political fights in recent history. It carefully threaded the needle between the philosophically opposite ends of the political spectrum.
Polls showed that Congress and Obama have taken a sharp hit in U.S. public opinion because of the prolonged battle over lifting the debt ceiling, something that past Congresses have done as a matter of course.
Without legislation in place by the end of Tuesday, the Treasury would run out of cash needed to pay investors in Treasury bonds, recipients of Social Security pension checks, anyone relying on military veterans’ benefits and businesses that do work for the government.
Treasury Secretary Timothy Geithner told ABC News Monday that he doesn’t know if the bruising debt-limit battle will harm America’s Triple-A credit rating, but says he fears “world confidence was damaged by this spectacle.”
Geithner told ABC that credit rating is “not my judgment to make.” But he also says “this is, in some ways, a judgment on the capacity of Congress to act.”