U.S. House Speaker says he has ‘agreement in principle’ with Biden to raise debt limit, avoid default | CBC News

U.S. President Joe Biden and House Speaker Kevin McCarthy reached an “agreement in principle” to limit federal spending and resolve the looming debt crisis ahead of a June 5 deadline, McCarthy said late Saturday.

A deal would avert a catastrophic U.S. default, but risks angering both Democratic and Republican sides with the concessions made to reach it.

The Democratic president and Republican Speaker reached the agreement after the two spoke earlier Saturday evening by phone, said McCarthy, speaking Saturday night.

The country and the world have been watching and waiting for a resolution to a political standoff that threatened the U.S. and global economy.

“After [Biden] wasted time and refused to negotiate for months, we’ve come to an agreement in principle that is worthy of the American people,” McCarthy said on Twitter.

Biden said the agreement “represents a compromise” but added it “protects my and Congressional Democrats’ key priorities.”

Central to the package is a two-year budget deal that would hold spending flat for 2024 and impose limits for 2025 in exchange for raising the debt limit for two years, pushing the volatile political issue past the next presidential election.

Negotiators agreed to some Republican demands for enhanced work requirements on recipients of food stamps that had sparked an uproar from House Democrats as a nonstarter.

But they also had appeared to still be labouring over a compromise on federal permitting changes that would ease regulations for developing oil, gas and renewable energy projects and foster new transmission line connections.

With the outlines of a deal in place, the legislative package could be drafted and shared with lawmakers in time for votes early next week in the House and later in the Senate. Biden urged both chambers “to pass the agreement right away.”

Debt ceiling used as bargaining chip

Americans and the world were uneasily watching the negotiating brinkmanship that could throw the U.S. economy into chaos and sap world confidence in the nation’s leadership.

The debt ceiling is the U.S. government’s borrowing limit that can only be raised through congressional authorization. That money, according to the U.S. Treasury Department, is needed for the government to meet its existing legal obligations, including social security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.

For decades, the vote to raise the debt limit has generally gone through without incident but has since become politicized and is now used as a bargaining chip that holds the economy hostage in order to extract political demands, Douglas Holtz-Eakin, the former director of the Congressional Budget Office who is the current president of the right-wing think-tank American Action Forum, previously told CBC News.

In this year’s negotiations, McCarthy and other Republicans pushed for spending cuts in exchange for a deal that would raise the limit and avoid a first-ever default on the federal debt.

Failure to lift the borrowing limit, now $31 trillion, to pay the nation’s incurred bills, would send shock waves through the U.S. and global economy.

Many economists have forecast dire economic consequences as a result of a default, which could include a credit rating downgrade, impact on borrowing, negative impact on the dollar, and potential havoc in the financial markets, with job losses in the thousands, if not millions — all leading to a recession.