In an effort to avert a first-ever default on U.S. obligations, President Barack Obama and Republican congressional leaders reached an agreement Sunday night on a compromise to permit vital U.S. borrowing by the Treasury in exchange for more than $2 trillion in long-term spending cuts, reports the Huffington Post. The Senate and House are expected to vote for passage today, although there is dissatisfaction on all fronts.
The president will be authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for another increase until 2013. Details include: The first cuts will come in at nearly $1 trillion, including savings of $350 billion from the Base Defense Budget, which will be trimmed based off a review of overall U.S. national security policy; A bipartisan committee with enhanced procedural authority will be responsible for pinpointing $1.5 trillion in deficit reduction from both entitlements and tax reform, as well as other spending programs; The committee will have to report by November 23, 2011, and Congress will be required to vote on Committee recommendations by December 23, 2011. The trigger mechanism -- should the committee's recommendations not be acted upon -- will be mandatory spending cuts. Those cuts, which will begin in January 2013, will be split 50/50 between domestic and defense spending. Social Security and Medicare beneficiaries and "low-income programs" would be exempted from those cuts.Automatic cuts — the enforcement mechanisms at the heart of the talks — would fall on programs important to both Republicans (defense cuts) and Democrats (health spending). Any potential Medicare cutbacks would affect providers, not beneficaries.
President Obama said he wanted more revenues from eliminating tax subsidies for corporations and by raising tax rates for Americans making more than $200,000. He said he would push for the special committee to make those changes.
U.S. stock futures surged on news of the agreement, sparking a global relief rally in equities, reports the Wall Street Journal. About 90 minutes before the opening bell, Dow Jones Industrial Average futures shot 153 points higher to 12,241. The Dow suffered its biggest weekly point loss last week since May 2010 as investors fretted that time for a debt deal was running out. Standard & Poor's 500-stock index futures ran up 16 points to 1,304 and Nasdaq 100 futures hiked up 26 points to 2,385. edict stock moves after the opening bell. Meanwhile gold futures slid below $1,621 an ounce, falling from a record on Friday, as the debt-ceiling deal led money to flow out of safe-haven assets, crude-oil futures rallied to near $97 an ounce, and the U.S. dollar fell against both the euro and the yen.
Bottom line, there’s no doubt the disfunction displayed by our elected leaders has tarnished our reputation abroad. And, the agreement if passed does not decisively remove the threat that the nation's AAA credit rating could be downgraded, an action that would raise borrowing costs across the board, and the prospect of further cuts ahead will cut short any celebrating.