Deal done, US will not default on debt

  • Yashwant Raj, Hindustan Times, Washington
  • Updated: Aug 02, 2011 15:31 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.

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.

"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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