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Harry Reid

WASHINGTON. —Senate Majority Leader Harry Reid said yesterday that a deal had been reached with Republican leaders to end a fiscal impasse that has threatened the United States with default. Reid, speaking from the Senate floor, said the agreement called for reopening the federal government with a temporary budget until January 15 and to extend US borrowing authority until February 7.

“The compromise we reached will provide our economy with the stability it desperately needs,” Reid said.
Senator Mitch McConnel, the top Republican, followed, confirming the agreement, which has to be approved by both the Senate and the Republican-controlled House.

US borrowing authority is on track to expire at midnight, and without an agreement the US runs the risk of a default with potentially devastating consequences.

The senators scrambled together an eleventh hour compromise that they hoped might protect Washington’s battered financial standing by heading off fears of a default.

“I hope that we’re nearing the end of this ordeal, this impasse which never should have happened in the first place,” said Senator Susan Collins, a Republican who has led efforts to broker a compromise. At midnight, the US economy was to sail into uncharted waters where the Treasury would no longer be able to borrow more to meet its obligations and avert a devastating debt default.

The only way to avert this peril, which could send global markets into turmoil and threaten another recession, would be for Congress to agree to raise the US government’s US$16.7 trillion debt ceiling. Senate leaders met to hammer out a compromise, after a previous effort in the Republican-led House collapsed in chaos on Tuesday.

“The America people are tired of where we are,” Senator Kelly Ayotte, a Republican, said. “They’re tired of the brinksmanship, and so they want us to get this resolved now for them — today, hopefully.”

Ayotte and other senators said that they understood that senate leaders had agreed the terms of a deal that could pass, and that it would be sent first to the House. If it is approved there, it would return to the senate, where lawmakers hope to rapidly pass it into law. Conservatives from the Tea Party movement in the House have thus far thwarted votes on the debt ceiling and on passing a budget, demanding concessions from President Barack Obama.

Obama’s Democrats have refused to allow Republicans to hold the budget and debt ceiling votes to “ransom” with attempts to defund or delay the president’s landmark Obamacare health insurance reform. The stand-off has forced the US federal government into a partial shutdown, and if it continues past midnight it would put the United States in a position where it might not be able to pay its debts.

Markets have been watching the mess carefully, but have not panicked, most traders assuming that Washington will scrape together a deal before triggering global financial calamity.

US stocks surged as soon as reports began coming out from the Senate on the prospective deal.
Just before midday the Dow Jones industrial average was up by 185 points, or 1.2 percent, to 15,353.41, while the S&P 500 added 21 points, or 1.3 percent, to 1,719.41.

The Fitch ratings agency had underlined the seriousness of the situation by putting the US government’s AAA credit rating on a downgrade warning, and European markets slid in morning trade. The Senate has a Democratic majority and would back a straight vote to raise the debt ceiling.

The remaining hurdle was the House, where Republican Speaker John Boehner has proved unable to control his restive caucus.
With the Tea Party to his right insisting on standing firm, Boehner has thus far proved unwilling to use minority Democratic votes to pass even an interim budget or a temporary debt ceiling hike.

On Tuesday, in what was essentially a wasted day, House Republicans floated a plan to extend US borrowing authority until February 7 and re-open the government until December 15. — AFP.