Bill to avert US default passed just ahead of deadline

With just hours to spare, the US Senate approved an emergency bill to avert the country’s first ever government default but it may not be enough to protect America’s credit rating
By The Newsroom
Published 3rd Aug 2011, 07:00 BST

The strong bipartisan vote was 74-26, with 60 votes having been needed for its passage to President Barack Obama to sign.

The legislation, which was approved by the House of Representatives on Monday by a 269-161 vote, overcoming opposition from unhappy liberal Democrats and tea party Republicans, makes a downpayment on taming out-of-control budget deficits, calling for up to $2.4 trillion in savings over the next decade, raising the debt ceiling through to the end of next year and establishing a special congressional committee to identify long-term fiscal reforms.

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But credit rating agency Fitch warned the measures were not enough for the US to maintain its coveted AAA debt rating. Fitch called for a credible plan to reduce the budget deficit.

It expects to conclude its review of the US sovereign rating by the end of August. There was no immediate reaction from other agencies.

Speaking shortly after the Senate vote, Mr Obama said the emergency bill was the first step in ensuring the country lives within its means. He said lawmakers need to find a balanced approach to reducing the deficit that includes adjustments to health care benefit plans for the elderly and reforming the tax code so the wealthy pay more.

Figures out yesterday showed Americans cut back on their spending in June for the first time in nearly two years, while their incomes also grew by the smallest amount in nine months.

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High petrol prices and unemployment have squeezed household budgets, leading to tepid overall economic growth in the April-June quarter.

Polls showed that Congress and President Obama have taken a sharp hit in US public opinion because of the prolonged battle over lifting the debt ceiling, something that past Congresses have done as a matter of course.

Without legislation the Treasury would run out of cash needed to pay investors in Treasury bonds, recipients of Social Security pension cheques, anyone relying on military veterans’ benefits and businesses that do work for the government.

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