Default narrowly averted as Congress votes to raise debt ceiling & re-open government

The United States narrowly averted a “catastrophic” default on its debt obligations after the Senate reached a compromise on Tuesday to temporarily raise the debt ceiling and re-open the government.

“I’m very happy that we just completed a bipartisan vote to re-open the government and to avert a default on our bills. There’ll be sometime before we realize the effects of what we’ve just done but the shutdown has hurt our economy to a significant degree,” said Senate Majority Leader Harry Reid (D-Nevada). “Averting this crisis is historic. Let’s be honest. This is pain inflicted on our nation for no good reason. We cannot make – we cannot, cannot make the same mistakes again.”

H.R. 2775 “Continuing Appropriations Act of 2014” passed the Senate by a 81 to 18 vote and the House with a 285 to 144 vote. Every single Democratic lawmaker in both houses voted for the bill; however, more than 60% of House Republicans oppose the measure to avert an unprecedented default and end the 2-week government shutdown.

The bill would:

  • Fund the government through Jan. 15, 2014 but locks in the sequester cuts at the Republicans’ insistence. This would allow the federal government to remain open while the Senate and House meet in conference to negotiate a longer-term budget.
  • Extend the debt limit through Feb. 7, 2014. Provisions in the bill would mitigate potential brinksmanship-type maneuvers by banning “any extraneous material” and amendments from future debt limit bills, and prevent undue delays or filibusters by limiting the Senate debate to 10 hours.
  • Provide retroactive pay for furloughed federal employees.
  • Reimburse state governments for the costs of continuing to carry out federal programs, such as Medicaid, during the 2-week government shutdown.
  • Impose income verifications on anyone applying for tax credits or other financial assistance through the Affordable Care Act’s insurance market exchange and allow the IRS to “recoup overpayments as necessary.”

The bicameral conference committee, led by Sen. Patty Murray (D-Washington) and Rep. Paul Ryan (R-Wisconsin), will have to submit a negotiated budget in December.

“We finally achieved our goal but frankly we ended up where we started. When we started, we said we would do three things: fund the government, pay our bills, and agree to negotiate,” said Sen. Chuck Schumer (D-New York). “And so the bottom line is millions suffered, millions didn’t get paychecks, the economy was dragged down, and confidence and faith in the United States’s credit and in the United States’s itself around the world was shaken. So this is not a happy day. It’s a somber day. Because, at the end of the day, we’ve never should have gone through what we went through.”

Schumer’s sentiment was echoed by President Barack Obama, who emphasized that “there are no winners here” a day after signing the bill.

“These last few weeks have inflicted completely unnecessary damage on our economy,” said Obama. ” At a moment when our economic recovery demands more jobs, more momentum, we’ve got yet another self-inflicted crisis that set our economy back. And for what? There was no economic rationale for all of this.”

Obama said House Republicans’ push for the shutdown and refusal to raise the debt ceiling – all done in the name of saving the American economy – were non-sensical because “nothing has done more to undermine our economy these past 3 years than the kind of tactics that created these manufactured crises.”

The President’s assessment was backed up by credit rating agency Standard & Poor’s.

On Tuesday, S&P estimated that the 2-week government government shutdown has cost the U.S. $24 billion, amounting to at least 0.6% of annualized fourth-quarter GDP. S&P lowered its U.S. growth projection from 3% to “closer to 2%” for the fourth quarter.

“The bottom line is government shutdown has hurt the U.S. economy,” according to statement released by S&P. “In September, we expected 3% annualized growth in the fourth quarter because we thought politicians would have learned from 2011 and taken steps to avoid things like a government shutdown and the possibility of a sovereign default.”

The agency also emphasized that had Congress allowed the default to occur, the government would be forced to cut spending by 4% of GDP.

“That would put the economy in a recession and wipe out much of the economic progress made by the recovery from the Great Recession,” according to S&P.

Obama urges reconciliation & calls for end to brinksmanship tactics

“There’s no good reason why we can’t govern responsibly, despite our differences, without lurching from manufactured crisis to manufactured crisis,” said Obama. “Let’s work together to make government work better instead of treating it like an enemy or purposely making it work worse. That’s not what the founders of this nation envisioned when they gave us the gift of self-government.”

Obama pointed out that government policy can be changed through the democratic process, without having to resort to holding hostage the entire U.S. economy to exact political concessions.

“You don’t like a particular policy or a particular President? Then argue for your position. Go out there and win an election. Push to change it. But don’t break it. Don’t break what our predecessors spent over two centuries building. That’s not being faithful to what this country’s about,” said Obama.

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