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Updated Monday, August 1, 2011 1:40 pm TWN, By Steven R. Hurst, AP

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Deal agreed to prevent US default

WASHINGTON -- Republicans and Democrats in Congress reached an agreement with President Barack Obama to raise the limit on U.S. borrowing and forestall an unprecedented American default, marking the start in the final chapter of one of the nastiest and divisive episodes in recent American political history.

Tuesday is the deadline to avoid a U.S. default on payments to investors in Treasury bonds, recipients of Social Security pension checks, those relying on military veterans benefits and businesses that do work for the government.

If approved, the compromise would presumably preserve America's sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.

No votes were expected in either house of Congress until Monday at the earliest, to give rank and file lawmakers a chance to review the package.

Shortly after Senate Majority Leader Harry Reid and his Republican counterpart, minority leader Mitchell McConnell, endorsed the plan on the Senate floor, Obama went to the White House press room to add his support for the deal. It meets one of his key demands, raising borrowing power sufficiently to keep the partisan poison pill from returning to the national agenda until after the 2012 election. It does not include any tax increases that Obama had pressed hard for to include.

House Speaker John Boehner, in a conference call with Republican members of the lower chamber, said the deal was a good one that met the demands of all Republicans.

Bowing to the still unknown outcome of congressional action, Obama said important votes remained to be taken but that leaders of both parties in both houses of Congress were agreed to a plan that would initially cut about US$1 trillion from U.S. spending, "the lowest level of domestic spending since Dwight Eisenhower was president" in the 1950s.

"Is this the deal I would have preferred," Obama asked, answering his own question with one word. "No."

But he said: "Most importantly it will allow us to avoid default and end the crisis that Washington imposed on the rest of America. And it will allow us to lift the cloud of doubt and uncertainty" that has hung above the United States for weeks.

And not just America: World markets showed their relief immediately. Japan's benchmark Nikkei index, opening Monday morning--at 8 p.m. Sunday on America's East Coast--was up 1.7 percent in early trading. On Wall Street, U.S. stock futures surged.

Obama and many economists and financial experts predicted global chaos and plunging stock markets had no deal been reached by midnight Tuesday.

The broadest outlines of the emerging plan, a deal that involved deep negotiations between McConnell and Vice President Joe Biden, would raise the federal debt limit in two stages by at least US$2.2 trillion, enough to tide the Treasury over until after the 2012 elections.

Big cuts in government spending would be phased in over a decade. Thousands of programs--the Park Service, Internal Revenue Service and Labor Department accounts among them--could be trimmed to levels last seen years ago.

No benefit cuts were envisioned for the Social Security pension system or Medicare, the federal program that provides health care payments to the elderly. But other programs would be scoured for savings. Taxes would be unlikely to rise.

The first step would take place immediately, raising the debt limit by nearly US$1 trillion and cutting spending by a slightly larger amount over a decade.

That would be followed by creation of a new congressional committee that would have until the end of November to recommend US$1.8 trillion or more in deficit cuts, targeting benefit programs such as Medicare, Medicaid and Social Security, or overhauling the tax code. Those deficit cuts would allow a second increase in the debt limit, which would be needed by early next year.

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Comments

August 1, 2011 jlee39@

House Republicans rode the tea party tiger to power last fall.

Now it’s turning on them, forcing party leaders to endure embarrassing delays and unwanted revisions to crucial debt-ceiling legislation.

This tiger did not change it stripes. When tea partiers emerged as a political phenomenon in 2009, they vowed to stand on principle and change the way Washington works. They’ve kept that promise despite some doubters’ predictions they would succumb to the get-along, go-along crowd once they reached Capitol Hill.

That fidelity is now threatening GOP unity and causing headaches for party leaders as they try to negotiate with Democrats in a divided government. With the 2012 campaigns cranking up, some Republicans are re-evaluating the fiery movement that fueled their sweeping victories in 2010.

House Speaker John Boehner’s misreading of tea partiers’ doggedness this week forced his chagrined team to postpone votes twice on his debt-ceiling bill. Finally, on Friday, Boehner had to amend the bill in ways Democrats openly derided. The events proved “that while the tea party Republicans are a noisy and effective protest movement, they are unfit for governing,” said Rep. Chris Van Hollen, D-Md.

The highly decentralized tea party movement was born amid the fiercely partisan fight that led to passage of Obama’s health care overhaul in 2010. At public forums throughout the nation, citizens sharply criticized the plan’s reach into private lives, including its requirement that everyone eventually buy health insurance.

The movement, which also decried federal bank bailouts and stimulus programs, played a huge role in last fall’s elections, when Republicans regained control of the House after four years in the minority.

Now, some establishment Republicans are wondering if they got more than they bargained for. The U.S. Chamber of Commerce, for instance, strongly opposed the health care legislation, making common cause with the tea party. But this month the chamber swung solidly behind Boehner’s original debt-ceiling bill. It suffered embarrassment with all the other groups and individuals forced to swallow the tea partiers’ demands.

Senate Majority Leader Harry Reid, D-Nev., barely conceals his disdain for such thinking. The key question, Reid said in a speech Friday, is “will today’s Republicans break away from the shrill voice of the tea party and return to the Republican Party of Ronald Reagan?”

When a Democratic leader praises Reagan, it’s a sign of how profoundly the tea party movement has influenced the GOP.

FOLKS, THIS IS A ROGUE MOVEMENT, AS THE DEPRESSION DEEPENS, WE WILL SEE MORE OF THESE THINGS, MANY USING THE NEW TACTIC OF PLEDGES, BUT WITH PERHAPS DIFFERENT IDEOLOGY.