Top of the Agenda: House Passes Debt Plan; Senate Votes Today
The U.S. House of Representatives passed legislation Monday night to raise the nation's $14.3 trillion debt ceiling by $2.4 trillion (WSJ) in three steps. The Senate is expected to pass the bill today, after which President Barack Obama will sign it into law, narrowly meeting a deadline that could have seen the United States default on its financial obligations for the first time in history.
If enacted, the plan will create a bipartisan congressional committee (NYT) to make recommendations on cutting the deficit--through spending cuts and a possible revision of the tax code--by at least $2.1 trillion over ten years.
Global markets and international leaders initially responded positively (DeutscheWelle) to news of the deal, with French Finance Minister Francois Baroin saying the move would "reinforce global growth." But stock markets dropped by the end of Monday as international investors responded to weak U.S. manufacturing figures for June and continued speculation that the United States may lose its AAA credit rating (Guardian), despite an agreement on the debt ceiling.
A tentative agreement on raising the debt ceiling falls far short of the deep reforms needed to improve U.S. spending patterns and the country's global standing, writes CFR's Sebastian Mallaby.
Whatever the outcome of the debt ceiling debate, many analysts expect a downgrade in the U.S. debt rating because of doubts about deficit-reduction plans. The fallout could include higher borrowing costs, a weaker dollar, and market turbulence.
A U.S. downgrade is justified, and rating agencies are likely to make good on their threat, write Carmen Reinhart and Vincent Reinhart in this Financial Times op-ed.