Biden, McCarthy Reach Debt Limit Deal To Save US From 'Catastrophic Default'

US Debt Limit: The outline of the deal includes freeing up the debt ceiling for two years, meaning there will be no need for negotiations in 2024.

US President Joe Biden and top Republican leader Kevin McCarthy have struck a deal to raise the country's debt ceiling or limit. This comes just a few days before America was expected to default. The US Congress will on Wednesday vote on the deal to extend the government borrowing authority which is just a few days before the “X-Date” of June 5 when the Treasury estimates the government will no longer be able to pay its bills, plunging the world's biggest economy into turmoil, reported news agency AFP.

"After weeks of negotiations we have come to an agreement in principle," McCarthy, the speaker of the Republican-held House of Representatives, said on Sunday. He said that he would meet with the president again and oversee the final drafting of the bill after which the House will vote on it. 

Meanwhile, Biden said that the deal was "good news for the American people because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost."

Despite the agreement, McCarthy said there was still “a lot of work to do”, but called it an agreement “worthy of the American people”.

Biden on Friday said that he is "hopeful" for a deal over the debt ceiling and that they are "very close" to a resolution over the issue. This development cames as the deadline for the potentially catastrophic default was extended to June 5. 

Earlier on Thursday, US Treasury Secretary Janet Yellen told the US Congress that if lawmakers do not come to a resolution for the federal debt ceiling the country may default on its debt obligations by June 5, four days later than the earlier projection, the news agency noted. 

In a letter to House Speaker Kevin McCarthy, Yellen wrote, “We now estimate that the Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5.”

"Waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States," she said. 

While raising the debt ceiling is a legal maneuver that happens most years with little to no drama, allowing the government to keep borrowing money and remain solvent.

Republican In US Congress Demand Deep Spending Cuts

However, the US Congress has a majority of the Republican Party this year and it is using it as leverage to push for a rollback of Democratic spending priorities, turning it into a contentious issue. This year, Republicans demanded deep spending cuts – largely in social spending for the poor – in return for raising the debt ceiling, saying the time had come for bitter medicine to address the country's mammoth $31 trillion debt. Biden argued that he would not negotiate over spending issues as a condition for raising the debt ceiling, accusing the Republicans of taking the economy hostage.

The outline of the deal includes freeing up the debt ceiling for two years, meaning there will be no need for negotiations in 2024 when the nation is in full presidential election swing, AFP reported. 

The big spending cuts Republicans wanted are not there, according to reports, but effectively a budget freeze will take effect. There will also be tougher rules on accessing unemployment benefits and other federal assistance.

Biden said the agreement represents "a compromise, which means not everyone gets what they want. That's the responsibility of governing."