Q&A: So what’s the big deal?

Simon Carswell on last night’s US Senate deal approving short-term government funding

Reporters gather around US senator Ted Cruz as he announces he will not filibuster, after a Republican Senate caucus meeting at the US Capitol in Washington. Mr Cruz, the new Texas senator and the Tea Party favourite who led the charge to make healthcare reforms central to the budget talks, lashed out at all comers yesterday after the Senate compromise. Photograph: Jonathan Ernst/Reuters

Reporters gather around US senator Ted Cruz as he announces he will not filibuster, after a Republican Senate caucus meeting at the US Capitol in Washington. Mr Cruz, the new Texas senator and the Tea Party favourite who led the charge to make healthcare reforms central to the budget talks, lashed out at all comers yesterday after the Senate compromise. Photograph: Jonathan Ernst/Reuters

Thu, Oct 17, 2013, 06:52

What happened in Washington last night?

US Congress passed a deal brokered by Democratic and Republican leaders in the Senate yesterday on a short-term budget to fund the government and to increase the amount the US is allowed to borrow.

The deal ends the 16-day US government shutdown and raises the borrowing limit – better known as the “debt ceiling” – preventing the American government from potentially defaulting on its debts.

The US treasury had warned that the government would - by today (October 17th) – reach the agreed debt ceiling of $16.7 trillion (€12 trillion) and thereafter have to rely on cash on hand and tax revenues to pay its bills. This raised the prospect of a US default for the first time in its history.

The 11th-hour agreement was passed overwhelmingly by the Democrat-controlled Senate – by 81 votes to 18 – and by the Republican-controlled House of Representatives – by 285 votes to 144.

But weren’t Republicans against a no-strings-attached budget deal?

Yes, until yesterday. House Republicans triggered the shutdown on October 1st by refusing to fund the government beyond the fiscal-year end on September 30th unless the White House and Senate Democrats delayed or repealed the president’s signature healthcare legislation known as Obamacare, something Mr Obama and fellow Democrats refused to do.

Republicans, pushed by far-right conservatives from the Tea Party intent on bringing down the law, had also been unwilling to agree to a debt-ceiling increase unless their demands were met.

The party’s leadership had refused to put an unconditional vote on a budget and debt limit increase to the House.

What changed?

As the debt ceiling deadline approached, world leaders, economists and businesses were becoming increasingly vocal about the potentially catastrophic effect of a US default on the global economy.

Billionaire US investor Warren Buffett warned that the Congressional threat not to raise the debt ceiling was akin to a “political weapon of mass destruction” that should never be used.

Credit ratings agency Fitch warned on Tuesday that the US could lose its top triple-A rating because “political brinkmanship and reduced financing flexibility could increase the risk of a US default.”

A downgrade in the US credit rating would raise the cost of borrowing not just for the government but for American consumers and businesses as well.

In the absence of any agreement coming from the House and with the US running perilously close to the debt ceiling deadline, Harry Reid, the Democratic majority leader in the Senate, and Mitch McConnell, the Republican minority leader in the Senate, agreed to sit down and hammer out a deal.

Republican leader, House Speaker John Boehner, failed to unite far-right conservatives and moderates within his party enough to influence the Senate proposal and avoid a US default on its own terms.

With few concessions won on Obamacare and the US on the eve of reaching the debt-limit deadline, the Republican leadership in the House conceded defeat.

They permitted the Senate bill to be put to a straight, open vote in the House. In the end 87 Republicans voted with all 198 Democrats voting last night to reopen the government and increase the debt limit, ending 16 days of opposition. The president signed the bill into law shortly after midnight.

“We fought the good fight,” said Boehner. “We just didn’t win.”

So that’s everything sorted now, right?

Well, for the time being, but not for long. The bill passed last night again just kicks the clichéd can down the road, only funding government until January 15th and raising the debt limit until February 7th.

Will there just be another standoff then?

Quite possibly, unless Democrats and Republicans can agree a longer-term budget in the meantime. The US government has been funded in recent years on the basis of temporary budgets known as continuing resolutions.

Part of the Senate deal involves the two sides sitting down for face-to-face negotiations by December 13th to find a compromise on government spending and hammer out a more permanent budget.

What’s the likelihood of that happening?

Given that it has been more than four years since Congress passed a full budget and in light of the bitter divisions between the two parties, particularly during this standoff, it will be a tall order.

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