The two mainstream political parties of the United States of America, Republican and Democratic, agreed — albeit in principle — to raise the debt ceiling to avert a default.
Although both the parties have come to an agreement, the Bill is yet to get the US Congress' nod.
What is the US debt ceiling?
After weeks of negotiations, both the rival parties came to an agreement on the key provisions of what is known as Fiscal Responsibility Act of 2023.
This text runs into 99 pages and was released on Sunday night, and now it will be subject to debate in the coming days.
Although the finer details of the deal are yet to become public, the key provisions entail the raising of $31.4 trillion debt limit.
This includes keeping non-defence government spending to remain flat for two years before raising by one percent in 2025.
The raising of debt ceiling is seen as a positive move for the entire economy as it would reportedly prevent a default that would have ensued recession, colossal job loss, inflation and devastation of retirement accounts.
What is the need of consensus between political rivals?
India’s Parliament has two houses Lok Sabha and Rajya Sabha. Likewise, the US Parliament has two houses: Senate and House of Representatives. The governing party in America is democratic party which incidentally is in majority in one house and in minority in the other.
The opposition party i.e., Republican control the House of Representatives, while the Democrats headed by the US President Joe Biden control the Senate.
This is why the unity of the two parties was crucial for any landmark policy decision such as this one to become a law.
Without this deal, US default would become a possibility that has the potential of disrupting the markets worldwide.
Why was this deal so vital?
Without this deal, the federal government would have run out of funds to pay for welfare benefits and other support programmes when seen from the US lens.
In the medium to long run, this would tip the US economy into recession ensuing huge job losses.
And in case of recession, the economies of most major countries would have suffered.
Also, since US dollar is the reserve currency of the world, a default would have led to a panic-like situation across the globe, causing immediate inflation and disruption in a smooth flow of goods and services.
What are the provisions of the deal?
The deal would also take back some funding that Congress allocated for the coronavirus pandemic but did not spend. A statement from the office of Republican House speaker Kevin McCarthy said the deal would rescind billions in unspent Covid funds, reported AFP.
Among a range of rules, the deal establishes work requirements for people who are receiving federal food assistance or on family welfare.
It is set to raise the age at which childless adults will be required to work to receive food stamps from 49 to 54.