The only surprise in the last minute solution to the US debt crisis was that American lawmakers should ever have placed themselves voluntarily in a situation where the world’s largest economy risked a default on its debt obligations. The same politicians that brought America to the edge of the fiscal cliff and self-harmed with the Sequester have done it again.
The deal was signed into law by the President in the early hours of Thursday morning, just hours before the exceptional measures that the US Treasury had been employing since May would have ended. The deal was passed easily through the Senate with a vote of 81 in favour with 18 dissenting voices. Its passage through Congress, where impasse had been generated, was less convincing, but nonetheless important with 285 votes in favour and 144 against. It is interesting that 162 American lawmakers would have preferred to see the USA go into sovereign default and risk immense harm to the US economy than vote to protect the interests of their fellow citizens – the very people that they are in Washington to represent.
However, as always, the Devil is in the detail. The agreement does not solve the problem of the debt ceiling, but provides a reasonable breathing space. The new ceiling (borrowing authority) will be breached on 7th February 2014, so the crisis could be reignited early next year. The lawmakers also agreed to fund the US government until 15th January 2014, giving limited breathing space for budget negotiations to take place. The shutdown of much of the government should now come to an end.
Democrats agreed to tighter verification checks on those claiming subsidies under Obamacare, the legislation at the heart of the crisis, but made no substantial concessions. President Obama had refused to concede to what he called extortion from part of the Republican Party (the so called Tea Party faction). Everybody will be breathing a sigh of relief today, but the next question will be if a longer-lasting solution to the budget and debt ceiling issues can be arrived at without dangerous financial brinkmanship in the New Year.