Investec – US Debt Default Deal On The Cards

America’s House of Representatives is expected to vote tomorrow on an 11th hour deal to head off an unprecedented debt default.

Republican leaders in Congress last night reached agreement with the White House on raising the amount of money the federal government is able to borrow.

Outgoing House Speaker John Boehner has appealed to his fellow Republicans to pass the two-year deal, although critics within his own ranks believe their leaders have given away too much in their dealings with the Democrat-controlled administration.

Debt limits

Initially, President Barack Obama and his Treasury Secretary Jacob Lew had wanted the debt limit increased unconditionally. But Republicans seem to have extracted concessions such as higher defence spending and cuts to some welfare spending.

Failure to agree a deal by November 3 would start the process of pushing the US government into default. Although fiscal brinkmanship has become common in Congress in recent years – with parts of the federal government shutting down for a day or more – this would be the first default of this type.

The government has never failed to meet its obligations.

Spending cuts

But an opinion poll from the Associated Press (AP) news agency and market research group GfK has found that a divided public would be willing to shut the government or halt its ability to borrow to pay bills should the White House not approve spending cuts in return for raising the debt ceiling.

AP said; “While Republicans hold that view strongly, most Democrats disagree.”

But the survey also found that the public does not support some more specific goals the Republicans have pursued this year as the price for keeping the government open, including repealing President Obama’s health-care scheme or blocking a nuclear deal with Iran.

Congress vote

Later this week, Mr Boehner is expected to hand over the speakership to fellow Republican Congressman Paul Ryan.

Mr Lew said yesterday: “We are on track for further economic growth …[yet] some in Congress are endangering this progress by once again manufacturing a crisis for our country.

“By waiting to the last minute to act on the debt limit, Congress could cause a terrible accident. This is not an abstraction; failure to raise the debt limit would mean devastating impacts for taxpayers, consumers and businesses.”

The current debt ceiling stands at $18.1 trillion (£12 trillion).

Newsletter Signup

Want to recieve regular updates from us, sign up to our newsletter to be in the know.