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HindustanTimes Tue,21 Oct 2014

World

US deal: another kick down road?
Agencies
Washington, October 16, 2013
First Published: 23:57 IST(16/10/2013)
Last Updated: 02:17 IST(17/10/2013)

US Senate leaders announced a deal on Wednesday to resolve the budget and debt ceiling impasse that threatened to force the country to default on its obligations.

The two houses of Congress still needed to vote on the deal, but signs were that it had enough support to go through, ending the weeks-long standoff and reopening the government.

But the same issues — funding the government and raising the debt ceiling again — could come back in January and February, unless Democrats and Republicans agree before then on a long-term program to cut the deficit.

Here are the main components of the deal:

Establishes a fresh short-term budget for fiscal 2014, which began on October 1, that allows all parts of the government to reopen. But the “continuing resolution” would cover only October 1-January 15, when a new budget or CR would have to be passed.

Sets the stage for negotiations between Democratic and Republican legislators on a long-term plan on taxes and spending, aimed at trimming the fiscal deficit while replacing $20 billion in  additional automatic”sequester” spending cuts programmed to come into effect in January. Those cuts, many fear, would further hold back economic growth and overly hamper the military.

Lifts the $16.7 trillion borrowing ceiling, allowing the Treasury to issue more debt to finance its deficit, which averages about $60 billion a month. But the ceiling would be locked again on February 7, raising a new challenge to the government.

US Speaker of the House John Boehner pumps his fist as he emerges from a meeting with Republican House members in the US Capitol in Washington. (Reuters Photo)

Smiles at Wall Street

US stocks surged on Wednesday, nearing an all-time high,  after Senate leaders said they had reached a deal to raise the government debt ceiling, one day before the US defaults on its debt.

US Senate Majority Leader Harry Reid and Senate Republican leader Mitch McConnell said leaders had come to an agreement, which will reopen the government through January 15 and raise the debt ceiling until February 7. The House of Representatives planned to vote on the measure later in the day. The gains brought the S&P 500 index within striking distance of the record intraday high of 1729.86 set on September 19. Trading volume was low, however, at just 2.4 billion shares, as many investors stayed on the sidelines over the uncertainty coming from Washington.

“Even though the market is moving up, this is a real historic event that is happening here so there is pause and concern,” said Frank Davis, director of sales and trading at LEK Securities in New York.

“You are seeing a lack of activity because it’s hard to invest in a market where you don’t know what’s around the corner.”

Throughout the crisis, many strategists have argued that the brief sell-offs would be a buying opportunity because Washington would get its act together. That scenario, at the moment, seems to be playing out. On the New York Stock Exchange, more than three stocks were rising for every share that was falling.

All ten S&P sectors were up, led by financials on hopes for the debt deal and strong quarterly results. The sector gained 1.8%. The Dow Jones industrial average was up 194.65 points, or 1.28%, at 15,362.66. The Standard & Poor’s 500 Index was up 22.53 points, or 1.33%, at 1,720.59. The Nasdaq Composite Index was up 42.25 points, or 1.11%, at 3,836.26.

A view of the US Capitol building at dusk in Washington. (AP Photo)


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