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The White House and House Republicans reached an “agreement in principle” on Saturday to address the debt ceiling, which many claim will avert a potential default on U.S. debt. The deal, which still needs to be approved by Congress, would raise the debt ceiling through late 2024.
The deal will perhaps be seen as a major victory for President Biden, who had been stating for weeks that a default would have devastating consequences for the U.S. economy. The agreement also seemingly represents a significant concession by House Republicans, who had previously passed legislation with more significant cuts to government spending and federal programs.
The deal is likely to be welcomed by financial markets, which have been bracing for a potential default. The deal is not without its critics though. Some Democrats have argued that it does not go far enough, and that the debt ceiling should be abolished altogether. Republicans, meanwhile, have complained that the deal gives too much power to Democrats.
Details of the Deal
The deal reached between the White House and House Republicans is rumored to include the following provisions, among others:
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The IRS funding granted in last year’s “inflation reduction act” will be reduced by $1.9 billion.
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Non-defense spending will be frozen at current levels for two years.
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Work requirements for Americans on federal benefits will be implemented for those aged 49 - 54.
The Future of the Debt Ceiling
The deal reached between the White House and House Republicans is only a temporary solution to the debt ceiling crisis. The debt limit will likely be raised again at some point in the future if the government does not develop greater fiscal responsibility.
Many commentators have claimed that a default on U.S. debt would have devastating consequences for the U.S. economy, such as the following:
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The stock market would crash, interest rates would skyrocket, and the value of the dollar would plummet.
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The U.S.'s credit rating would be damaged and it would be more difficult for the government to borrow money in the future.
Either way, a default would hurt both parties politically, almost as much as the government’s financial profligacy has.
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