The United States’ senators have agreed to increase the debt ceiling of the country, just two weeks ahead of its due date.
In US politics, disagreements about the ceiling (the limit of how much government can borrow) are nothing new.
The financial markets have been jittery because of the row between Republicans & Democrats.
Fears that the US might default on its national debt were widespread, which could have catastrophic consequences.
Chuck Schumer (a Democrat) was the Senate Majority Leader and said that the lawmakers reached a compromise to extend debt ceiling extension until December.
After Mitch McConnell, Schumer’s Republican counterpart, announced the announcement. These were talks “in good faith” which had been ongoing throughout the night.
- Are the US on track to exceed its debt limit.
It comes just two weeks after 18 October when Janet Yellen, US Treasury Secretary warned that this was the last day to avoid the US’s first default.
The US debt currently stands at around $28tn (£21tn).
Congress must still pass temporary debt compromise. US lawmakers still will have to discuss this issue by the December deadline in order for default to be avoided.
Analysts believe that if the US defaults on its debts, it will severely damage the country’s credit rating and plunge the global financial market into turmoil. It could also lead to an inflicted recession.
US governments spend more than they collect in taxes. To make up the difference, it borrows money.
Through the issuing bonds, the US Treasury allows you to borrow money. The US government bonds are considered one of the most secure and reliable investments in the world.
Congress created a limit, or “ceiling”, on the total amount of government debt in 1939.
On more than 100 occasions, the ceiling has been raised to enable the government to borrow even more. It is seldom the topic of political conflict and Congress acts often in bipartisan fashion.
Some Republicans are dissatisfied with the new spending plans that Democrats seek to pass without Republican support.
Democrats point out that the raising of the debt ceiling is about repaying current obligations, rather than forging new ones.