US narrowly avoids its first-ever default as Congress approves debt-ceiling suspension

Just days before the United States was set to default on its debt for the first time, the US Congress approved a deal to lift the nation's borrowing limit. The bill, which is well on its way to becoming law, will spare the US from a catastrophic default on its $31.4 trillion in debt.

The bill sped through the Senate by a vote of 63-36, just a day after it sailed through the US House of Representatives. It will need President Joe Biden's signature before transitioning into law. As per BBC, Biden has promisedhe will enact the measure into law.

Long-drawn negotiations

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The vote to suspend the federal debt limit comes after weeks of fraught negotiations as the nation tries to eliminate the threat of a disastrous credit default just four days ahead of a deadline set by the US treasury.

"America can breathe a sigh of relief," said Democratic Senate Majority Leader Chuck Schumer, adding that the nation is avoiding default, the consequences of which, in his words, would have been "catastrophic".

"But, for all the ups and downs and twists and turns it took to get here, it is so good for this country that both parties have come together at last to avoid default," he said.

The havoc a default would have wrought

As per AFP, the first default in American history would have led to the loss of millions of jobs and $15 trillion in household wealth, and increased costs for mortgages and other borrowings.

What is the US debt ceiling?

America spends more money than it earns through taxation. To meet the gap, it borrows money via the issuance of government bonds — seen as the world's most reliable investments.

A limit on this borrowing, as per AFP, was introduced by lawmakers around 80 years ago. It was meant to limit how much federal debt could be accrued by the government.

Since then, it has been raised more than 100 times to allow the US government to meet its spending commitments. The current limit stands at around $31.5 trillion.

Both Democrats and Republicans acknowledge that raising this debt limit is "politically toxic," reports AFP. Even so, they acknowledge that the failure to do so would result in a depression in the US economy and unsettling world markets as the government misses debt payments.

(With inputs from agencies)

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