The global economy heaved a collective sigh of relief after President Barack Obama announced on Sunday night that US congressional leaders have reached an agreement on a deal targeted to raise the government’s borrowing limits and avoid a default, thus maintaining the country’s triple-A credit rating.
The President announced that a tentative framework has been worked out to “end the crisis that Washington imposed on America”, as Democrats and Republican united on a deal to cut budget $2.8 trillion in budget deficits over the next decade. The move will “begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy”, said President Obama.
The proposed spending cut would mean that US government spending will be lowest since the presidency of Dwight Eisenhower in the 1950s, said Mr. Obama. However, the deficit reduction program “won’t be a drag on fragile economy”, said Mr. Obama.
The deal still needs to be passed by the senate and the House of Representatives before the Tuesday midnight deadline, beyond which the government won’t be able to honour its obligations – the Treasury had warned.
The news had positive effect on early morning trade in Asia with the Japanese Nikkei rising by 1.5 percent in Monday early trading. The US dollar rose by 1 percent against both the Yen and the Swiss franc.
The Senators have agreed to raise the borrowing limit of $14.3 trillion by another $2,400 billion and avoid another lengthy negotiation before the November 2012 presidential election, a key democratic demand. In return a key demand of the Republicans, spending cuts of $2,800 billion over the next 10 years, has been agreed to.
However, this not the deal the President had bargained for. “Is this the deal I would have preferred? No,” said Mr. Obama adding that the “process has been messy, and it has taken far too long.”
The deal failed to close tax-loopholes and decide on other taxes on American corporations and the rich to increase government revenues. However, the president said “everything will be on the table” when the committee.