Key US Congress vote looms for debt ceiling crisis

01 August 2011 23:10  [Source: ICIS news]

US House Speaker John BoehnerWASHINGTON (ICIS)--Final votes in the US Congress were expected late on Monday and early on Tuesday on a plan to raise the government’s borrowing authority, cut federal spending and provide an 11th hour rescue from a possible US default.

The US House of Representatives was scheduled to hold a final vote on Monday night on the debt ceiling package that was worked out between Republican leaders in Congress and the White House.

The broad outlines of that deal were announced by President Barack Obama on Sunday night, although he warned that the agreement to end the US fiscal crisis would not be certain until approved by both the House and Senate.

Under the proposed agreement, the federal government would put a hold on current spending and cut expenditures by as much as $2.5 trillion (€1.7 trillion) over 10 years, with spending reductions for both domestic and military programmes.

If approved by Congress, the deal would provide for an immediate $1 trillion increase in the nation’s borrowing authority or debt ceiling, which is currently at $14.3 trillion.

That $1 trillion in the debt limit increase would be matched by about $1 trillion in first stage spending cuts over 10 years.

An additional $1.5 trillion in borrowing authority would kick in later this year, providing that a special congressional debt-reduction committee comes up with up to $1.5 trillion in further spending cuts by late November.

Congress would have until 23 December to either approve or reject the special bipartisan committee’s recommended package of spending cuts.  However, if Congress were to vote against the cuts package, that rejection would trigger an automatic, across-the-board reduction in federal spending equal to $1.5 trillion.

If either the House or Senate should fail to approve the proposed deal, the US could begin to default on some of its sovereign debt obligations as soon as Wednesday, according to the US Treasury Department.

Sources said that the deal faces considerable opposition among some Republicans in the House, and that Republican House Speaker John Boehner may have to rely on support from Democrats to get the agreement approved.

The deal is expected to pass comfortably in the Senate, but only if the House approves the measure in what was likely to be a crucial late-night vote on Monday.

Manufacturing economists and chemical industry leaders have warned that if Congress fails to pass a debt ceiling increase, the results could undermine the already weak US economic recovery and possibly precipitate a new recession.

($1 = €0.69)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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