Averting debt default crisis, US Congress votes for short-term debt ceiling hike

A default would have immense fallout on global financial markets

ITDC INDIA EPRESS/ITDC NEWS R Members of the United States Congress pushed through an increase to the nation's debt limit, albeit short-term, that would ensure that the US would not default on its bonds and thus avert an unprecedented financial crisis. The $480 billion increase in the country's borrowing ceiling cleared the Senate last week on a party-line vote. The congressional approval has now come through, and the president can sign it into law.

A default, which is when the US treasury runs out of money to pay bondholders across the world and its own bills, would have immense fallout on global financial markets built upon the bedrock safety of US government debt. Treasury Secretary Janet Yellen had told the US Congress that the Treasury Department will likely exhaust all of its extraordinary measures to avoid a default by October 18. Yellen warned Congress that the Treasury would run out of maneuvering room by mid-October.

Senate Majority Leader Chuck Schumer had said on Thursday that an agreement has been reached with Republicans to extend the government's borrowing authority into December. The Republicans had earlier refused to cooperate in passing a bill to raise the debt ceiling—the latter is a hot potato, and to vote for a bill that raises debt limits is considered politically toxic. Republican leader Mitch McConnell had earlier stated that he wanted the Democrats to take the politically uncomfortable debt ceiling vote on their own. "Republicans are not rooting for a debt limit breach," he said.