Obama announces deal to raise debt limit, cut spending

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Obama announces deal to raise debt limit, cut spending
Source: Agencies
2011-08-01

WASHINGTON — President Barack Obama and congressional leaders agreed Sunday to cut federal deficits by trillions of dollars over the next decade while raising the nation’s debt limit before Tuesday’s deadline.

"This compromise does make a serious down payment on the deficit reduction we need and gives each party a strong incentive to get a balanced plan done before the end of the year," Obama said Sunday night. "Most importantly, it will allow us to avoid default and end the crisis Washington imposed on the rest of America."

The first part of the agreement could cut nearly $1 trillion in federal spending over the next decade, Obama said, while a special legislative committee will look for more cuts. "Everything will be on the table," he said.

Obama spoke as financial markets opened in Asia — Japan’s Nikkei index had climbed nearly 2 percent within an hour of his remarks — and eased fears that the United States would default on its debt and perhaps slip back into recession.

Congressional leaders of both parties said they would present details of the deal to their members on Monday and were confident that both houses would approve the compromise before Tuesday night, when the nation’s $14.3 trillion debt limit must be increased.

The agreement, forged after weeks of unusually intense, often personal Washington drama, still needs congressional approval.

Senate leaders quickly had warm words for the agreement, but House leaders were more circumspect.

"I know this agreement won’t make every Republican happy. It certainly won’t make every Democrat happy, either," said Senate Majority Leader Harry Reid, D-Nev., who signed off on the deal subject to approval of his caucus.

"Both parties gave more ground than they wanted to. And neither side got as much as it had hoped. But that is the essence of compromise. And the American people demanded compromise this week."

Senate Republican Leader Mitch McConnell of Kentucky praised the agreement. "I think I can say with a high degree of confidence that there is now a framework to review that will ensure significant cuts in Washington spending," he said. "And we can assure the American people tonight that the United States of America will not for the first time in our history default on its obligations."

House Speaker John Boehner, R-Ohio, had concerns that defense spending could be cut too much. But he told House Republicans on Sunday night: "My hope would be to file it and have it on the floor as soon as possible.† I realize that’s not ideal, and I apologize for it.† But after I go through it, you’ll realize it’s pretty much the framework we’ve been operating in."

House Minority Leader Nancy Pelosi, D-Calif., said she wanted to see a final agreement in writing. "We all may not be able to support it, or none of us may be able to support it.† We are open what to what comes down because the stakes are very high," she said.

Congressional leaders spent Sunday in a whirlwind of phone calls, meetings and deliberations, as several scenarios describing deals came and went.

Democratic and Republican negotiators’ chief dispute was over creation of a system for assuring future deficit reduction.

But they agreed on several key points:

— Spending cuts of $900 billion over 10 years on discretionary items, primarily education, housing and transportation programs that Congress can more easily control. Defense would be cut $350 billion.

— No tax increase, although overhauling the tax code would be part of future deficit-reduction efforts. Any automatic cuts would start on January 1, 2013, the same day the Bush tax cuts are due to end. While that suggested the Bush tax cuts could be negotiable, a senior administration official said Obama "is not going to sign something that extends the Bush tax cuts for the wealthy."

— A 12-member, bipartisan legislative committee to recommend further spending cuts, with the goal to come up with $1.5 trillion. If it fell short, the rest would be made up with automatic spending cuts, about half from defense and the rest from non-defense programs. Social Security, Medicare and veterans benefits would be exempt. Medicare cuts would be restricted to provider payments, and would be limited.

A third increase of $1.5 trillion — expected to be enough to get through next year — would occur after the committee’s action, or the automatic cuts, went into effect.

Members of the Congressional Black Caucus and the Congressional Progressive Caucus were expected to urge Obama on Monday to invoke the 14th Amendment and bypass Congress to raise the debt ceiling. The two liberal and mostly Democratic groups are concerned about the extent of the proposed spending cuts in the deal.

Disagreements about the bipartisan committee reportedly held up the final agreement, as well as questions over whether House leaders could get Republican rank-and-file members, including conservative tea party favorites who have opposed raising the debt limit, to go along. House Republicans on Friday passed a deficit-cutting measure that would require a balanced budget amendment to the Constitution be adopted by Congress before the larger debt limit increase would take effect.

But the automatic cut provision was seen as a compromise that both parties could accept.

With the threat of automatic cuts — Democrats have insisted that Medicare not be cut while Republicans have been adamant about not slashing defense spending too deeply — the joint committee would be motivated to find savings on its own.

The multi-stage debt limit increase was a concession by Democrats. They had sought one vote on raising the $14.3 trillion limit, which probably would have meant no more such votes until after the 2012 presidential election.
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Asian markets soar on US debt deal
By Danny McCord
AFP News. 2011-08-01

HONG KONG (AFP) — Asian stock markets surged on Monday morning after US President Barack Obama said lawmakers had reached a last-minute deal that would raise the country's debt ceiling and avoid a catastrophic default.

Tokyo jumped 1.84 percent by the break, Hong Kong rose 1.42 percent and Sydney added 1.93 percent, while Seoul gained 1.77 percent and Taipei climbed 0.42 percent. Shanghai was flat.

"I want to announce that the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default, a default that would have had a devastating effect on our economy," Obama said late Sunday in Washington.

The deal will raise the country's $14.3 trillion debt ceiling by about $2.4 trillion in two steps, while calling for roughly the same amount in spending cuts over 10 years.

However, the bill must still be passed by both houses of Congress and Obama urged lawmakers "to do the right thing and support this deal".

Traders worldwide have been on edge for several weeks as the White House and Democrats squabbled with the Republicans over how to make enough budget cuts to allow a hike in the debt limit.

A default by the United States, the world's richest country, would send shudders through the global economy that could lead to another financial crisis.

The news also lifted the dollar after a steady sell-off last week as Democrats and Republicans struggled to come to an agreement.

The greenback was at 77.83 yen in Tokyo at 0200 GMT after briefly rising above the 78 yen level, up from 76.73 yen in New York late Friday.

The euro fetched $1.4387 against $1.4395. The European single unit rose to 111.97 yen from 110.41 yen.

Oil also rallied on the announcement. New York's main contract, light sweet crude for delivery in September, surged $1.53 to $97.23 per barrel.

Brent North Sea crude gained $1.25 to $117.99.

Gold opened in Hong Kong at $1,612.00-$1,613.00 an ounce, unchanged from Friday's finish.