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Debt Act Passed: America Avoids Bankruptcy

Debt Act Passed: America Avoids Bankruptcy

After the House of Representatives, the Senate approved a bill that would temporarily suspend the debt ceiling in the United States. The US government will run out of money in a matter of days.

The imminent bankruptcy of the US government has been averted. After the House of Representatives, the Senate in Washington on Thursday evening (local time) approved a bill that would temporarily freeze the national debt ceiling in the United States. Without this move, the US government would run out of money in a matter of days. To the end, President Joe Biden’s Democrats fought hard to find a compromise with Republicans.

With the final vote by Congress, a long political ordeal that fueled deep concerns about the economic crisis in the U.S. and beyond came to an end. A default in the world’s largest economy could have triggered a global financial crisis and economic collapse. So the political deadlock in Washington has left stock markets unsettled.

Sixty-three of the 100 senators voted in favor of the bill, which would limit government spending over the next two years while suspending the debt ceiling until 2025. Thus the Congress got the required majority in the assembly. This will ensure that the government will not go bankrupt in a few days. US Treasury Secretary Janet Yellen recently warned that this dramatic event could happen as soon as Monday. So, the solution came just before the deadline.

Biden’s ceremonial signing

The US House of Representatives passed the bill on Wednesday evening. After a final vote in the Senate, President Biden must now sign the legislation into effect. However, this is considered a mere formality.

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Debt Drama Background: In the United States, Congress sets the debt ceiling at irregular intervals to determine how much the state can borrow. This time the practice degenerated into bitter party-political infighting and ideological trench warfare between Democrats and Republicans.

Republicans, who have held the majority in the House of Representatives since January, have for weeks refused to raise the debt ceiling and demanded substantial cuts in government spending. They argued that government spending had spiraled out of control and reached the point of irresponsibility. Democrats accused Republicans of wreaking economic havoc on the country in order to make a name for themselves politically.

Weeks of tough negotiations

Biden and House Republican Speaker Kevin McCarthy have been in tough negotiations for the past few weeks, reaching a cross-party compromise and only offering a deal late last week. The compromise provides that the size of the federal budget that Democrats wanted to increase under Biden is effectively frozen. The budgets of many federal bodies and ministries are adjusted for this. Republicans were able to enforce that some Social Security recipients must prove work. Democrats actually wanted to increase state revenue by taxing the rich more. Republicans, on the other hand, defended themselves.

Many Democrats and Republicans are unhappy with the deal. Left-wing democrats complain about cuts to the social sector. For right-wing Republicans, the cuts don’t go far enough. And many moderate politicians in the middle of both parties are not enthusiastic. However, given the dramatic consequences of default, enough members of Congress from both camps voted in favor of the treaty, thus obtaining the necessary majority in Parliament.

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