Deal done, US will not default on debt - Hindustan Times
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Deal done, US will not default on debt

Hindustan Times | ByYashwant Raj, Washington
Aug 02, 2011 03:31 PM IST

The US will not default on its debt obligations following an agreement reached Sunday evening, just a day short of the deadline, to a framework, which is being fleshed out now for passage by both chambers of the Congress. If Uncle Sam sneezes, the world catches cold

The US will not default on its debt obligations following an agreement reached Sunday evening, just a day short of the deadline, to a framework, which is being fleshed out now for passage by both chambers of the Congress.

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The agreement allows the debt limit to go up by about $2.4 trillion in two phases, reduce spending by about the same amount over the 10 years with the help of a congressional committee being set up to identify to cut targets.

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"Is this the deal I would have preferred? No," said President Barrack Obama announcing the agreement late Sunday. Republican and Democrat leaders made the same point: this is not what they had wanted, but this is a deal.

Obama, for instance, had pressed hard for tax increases. And Republicans had wanted a constitutional amendment making balanced budget mandatory for the federal government as it is for some states.

But with just a day to go before the US defaulted on its financial obligations at home and abroad and risked more than a loss of face - interest hikes and credit rating downgrade - everyone wanted a deal; actually, needed it.

Governments, central banks and markets all over the world had watched with mounting concern the US debate get precipitously close to the edge: How would the default impact a struggling global economy.

The markets were relieved. US S&P 500 stock futures bounced 1.5%, Hong Kong's Hang Seng was up 1.5% and Japan's Nikkei share average gained 1.8%.

Obama can now get back his independent and centrist voters, who had moved away because of his big-spending stimulus packages. Though some Democrats feel they have given away too much - and moved too far right - to get the deal.

Republicans too would like to move on as the debt debate showed them being held hostage by a small group of ultra-conservative legislators aligned with the Tea Party. The Wall Street Journal had appealed for adults in the party to take charge.

If Uncle Sam sneezes, the world catches cold

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