Global relief at US debt ceiling deal

The world can breathe a sigh of relief as a 99-page bill to increase the US debt ceiling – and avert global financial catastrophe – heads to President Joe Biden’s desk to be signed into law, after passing Congress.

Just in the nick of time. In a mere three days, the US government was due to default on its debt unless it forged a deal to raise the total amount of money the government can borrow to pay its bills.

The debt ceiling deal – thrashed out between teams representing the Democratic Biden and Republican House Speaker Kevin McCarthy – will suspend the federal borrowing limit completely until January 2025. 

Exactly what would have happened if the US had defaulted on its debt is unclear – we would have been in uncharted territory. But we can be sure that there would have been some fairly catastrophic consequences. 

The government would have struggled to pay federal and military employees as well as interest on national debt while social security cheques and charities that count on government funds would be in peril. Some analysts also predicted it would have led to the loss of more than seven million jobs.

Biden has welcomed the bill’s approval as a “big win for our economy and the American people”. The same could be said for most people outside America too. 

Over $500bn in US debt gets traded every day, meaning a default would have had grave global ramifications. If investors start to see US debt as risky, they will charge the US more to borrow money – and this in turn, could make borrowing more expensive everywhere. 

While it was clear to most that avoiding debt default was paramount, doing so meant securing a bipartisan deal, which was able to pass through Congress – by no means a small task in a country as politically polarised as America. 

The new legislation has involved compromise on both sides, and not everyone is happy with the terms of agreement. On the right, some protest that it doesn’t go far enough to curb spending while on the left, some are angry about the extra work requirement for some social welfare recipients as well as the approval of a controversial natural gas pipeline. 

But, in general, the agreed debt ceiling deal – which senators voted 63 to 36 in favour of – is an encouraging sign that Democrats and Republicans are still willing to put their differences aside and work together in a time of crisis. 

As Anthony Peters writes in Reaction, it’s the first time in a long time that the wellbeing of the American people, their economy and, by extension, the economy of most of the rest of the world, has been prioritised over partisan rhetoric. 

Write to us with your comments to be considered for publication at letters@reaction.life