The Democratic Party and the Republican Party have reached an agreement in principle on the debt ceiling in order to avoid default. Kevin McCarthy and Joe Biden announced the deal that will enable the government to meet its financial commitments.
"Earlier this evening, Speaker McCarthy and I reached a budget agreement in principle. It is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone. And, the agreement protects my and Congressional Democrats’ key priorities and legislative accomplishments. The agreement represents a compromise, which means not everyone gets what they want. That’s the responsibility of governing," Joe Biden said in a statement.
"And, this agreement is good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost. Over the next day, our negotiating teams will finalize legislative text and the agreement will go to the United States House and Senate. I strongly urge both chambers to pass the agreement right away," he added.
"It reins in government overreach"
House Speaker Kevin McCarthy confirmed the agreement that will end the Democratic Party's wasteful spending:
Republicans are poised to deliver big, consequential change in Washington. Soon, we will vote for a responsible debt limit agreement that stops Democrats' reckless spending, claws back unspent COVID funds, blocks Biden's new tax schemes, & much, much more https://t.co/TQ7CblFsaM
— Kevin McCarthy (@SpeakerMcCarthy) May 28, 2023
McCarthy noted that there is still "a lot of work to do" However, he stated, "I believe this is an agreement in principle that's worthy of the American people. It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, and rein in government overreach. There are no new taxes, no new government programs. There's a lot more within the bill."
Prior to this announcement, the speaker indicated that "everyone won’t like what is the end of the agreement … on both sides. But … at the end of the day I think people should see what that product is before people vote on it" reflecting that there will be members of both parties who will be unhappy about the agreement that has been reached.
What would default have meant?
With this agreement, the Biden administration takes a breath of fresh air. Had the agreement not been reached, the government would not be able to meet its obligations to its employees, pensioners, and those who invested in Treasury bills and bonds in search of profitability and stability.
This would mean an immediate downgrade of the U.S. rating by credit agencies. This would lead to a cost overrun and a loss of confidence from investors, who would choose other safer options first.