US Senate passes bill to raise debt ceiling avoiding 'catastrophic' default

Republicans and Joe Biden have claimed victory as the United States avoided a disastrous default by agreeing to raise the debt ceiling.

It followed weeks of fraught negotiations and the deal was sealed just days before the country was set to run out of money to pay its bills on Monday.

“Nothing would have been more catastrophic,” Mr Biden said as he addressed the American people from the Oval Office on Friday night.

The last time the US came as close to defaulting, which would lead to the loss of millions of jobs, was in 2011. The new 99-page Fiscal Responsibility Act will extend the government’s ability to borrow while cutting federal spending.

The bill was passed by 63 votes to 36 in the Senate, having easily passed the House of Representatives, and Mr Biden is set to sign it into law on Saturday.

Mr Biden said: “No one gets everything they want in a negotiation but make no mistake, this bipartisan agreement is a big win for our economy and the American people.”

The US spends more money than it collects from tax so it borrows money through government bonds, one of the world’s most reliable investments.

Eighty years ago it placed a limit on how much debt could be built up, and that ceiling has since been raised more than 100 times, currently standing at $31.5 trillion.

‘Reckless spending’

This year, Republicans sought spending cuts in return for agreeing to raise it.

They argued that Mr Biden’s administration was recklessly overspending ahead of the 2024 election.

Mr Biden wants to address the growing debt with tax increases on the wealthy and corporations, while Republicans have ruled out any tax increases.

The main argument centred on spending for programmes such as housing, environmental protection, education and medical research.

Republicans initially asked for $4.8 trillion in spending cuts over a decade and, in the end, won about $1.5 trillion in reductions.

Kevin McCarthy, the Republican House Speaker, said it was a big victory, adding: “Keep underestimating us, and we’ll keep proving to the American public that we’ve never given up.

“In the coming months, Senate Republicans will continue working to... control Washington Democrats’ reckless spending.”

Republican congressman Dusty Johnson said: “Kevin McCarthy’s stock is trading higher now than it has in any point of his congressional career.”

However, Mr McCarthy continued to face a backlash from hardliners on the right who argued he had made too many concessions on spending cuts.

Deal nearly derailed

At one point the deal was nearly derailed as some Republicans were angered at military spending rising less than inflation.

However, a commitment was made to have a separate bill which would include providing money for Ukraine’s defence against the Russian invasion.

Ahead of the bill passing Lindsey Graham, the Republican senator from South Carolina, said: “As currently written, this bill puts our military behind the eight ball.

“The first and most important dollars we allocate each year in the budget are those to protect and defend the United States and our interests.”

‘A sigh of relief’

Chuck Schumer, the Democrat leader in the Senate, responded: “This debt ceiling deal does nothing to limit the Senate’s ability to appropriate emergency supplemental funds to ensure our military capabilities are sufficient to deter China, Russia and our other adversaries.”

Mr Schumer said the US could “breathe a sigh of relief” after avoiding a “catastrophic” economic collapse.

He added: “For all the ups and downs, and twists and turns, it took to get here, it is so good for this country that both parties have come together at last to avoid default. Democrats are feeling very good.”

Donald Trump, the former president, gave approval to the deal, saying: “I would have taken the default if you had to, if you didn’t get it right.

“They got something done. Kevin worked really hard, everybody worked very hard, I mean, with a lot of good intention.”

The deal suspended the debt ceiling until January 2025.

Janet Yellen, the US Treasury Secretary, said: “This legislation protects the full faith and credit of the United States and preserves our financial leadership, which is critical to our economic growth and stability.”