A measure to cut spending and raise the US debt ceiling to avert an unprecedented default has today passed in the Senate and become law.
Just hours before the Treasury's authority to borrow funds ran out, the Senate voted 74 to 26 to pass a hard-won compromise to lift the government's $14.3 trillion (€10 trillion) debt ceiling enough to last beyond the November 2012 elections.
President Barack Obama, without public ceremony, signed into law the debt bill, which had already passed in the House of Representatives.
Earlier today, Mr Obama said the bill is an important first step toward ensuring the United States lives within its means but that more is needed to rebuild the US economy.
In a Rose Garden statement, Mr Obama made clear he expects tax reform to emerge from deliberations around a new joint bipartisan committee to be established by the legislation, and that a "balanced approach" in which the wealthier pay more taxes is needed for more deficit reduction.
"Both parties share power in Washington. And both parties need to take responsibility for improving this economy," the president said. "I'll be discussing additional ideas in the weeks ahead to help companies hire, invest and expand."
Mr Obama chided US political leaders for taking so long to resolve the impasse over the debt ceiling, bringing the country close to an unprecedented default.
"We have seen in the past few days that Washington has the ability to focus when there is a timer ticking down and when there is a looming disaster," he said. "It shouldn't take the risk of default, the risk of economic catastrophe, to get folks in this town to work together and do their jobs."
The president said uncertainty from the debt debate has been an impediment to business but that the economic recovery has also been hampered by such unforeseen problems as the Japan earthquake. The president urged Congress to pass stalled trade bills and said he wants unemployment benefits extended.
The deficit-cutting plan failed to dispel fears of a credit downgrade and future feuds over taxes and spending, however, as US stocks fell sharply as investors fretted over persistent economic and political uncertainties dogging the world's largest economy.
The deal may also not be enough to prevent a damaging credit rating downgrade.
The bill overcame its biggest hurdle last night when the Republican-led House of Representatives passed the $2.1 trillion deficit-reduction plan despite resistance from recalcitrant Tea Party conservatives and disappointed liberal Democrats. The plan was passed by 269 votes to161.
The deal marks the end of an acrimonious partisan stalemate in Washington that threatened chaos in global financial markets and dented America's stature as the world's economic superpower.
But deep uncertainty remained over whether the budget deal goes far enough in reining in deficits to satisfy major ratings agencies, which have threatened to downgrade the United States' AAA credit rating. Such a move would raise borrowing costs and act as another drag on the stumbling economy.
Treasury secretary Timothy Geithner said he expected the ratings agencies to take a "careful look" at the situation but that he was not sure whether the country would be spared from a downgrade. "I don't know. It's hard to tell," he told ABC News.
The plan calls for $2.1 trillion in spending cuts spread over 10 years and creates a congressional committee to recommend a deficit-reduction package by late November. That appears to fall short of rating agency Standard & Poor's assertion that $4 trillion in deficit-reduction measures would be needed avoid a downgrade by showing that Washington was putting the country's finances in order.
The compromise deal was agreed after weeks of angry debate and brinkmanship between Democrats and Republicans.
With unemployment above 9 per cent and the economy barely growing so far this year, Americans have become increasingly angry over the partisan attacks and refusals to compromise.
Reuters
