U.S. Senate approves temporary lift of debt ceiling, averts default
WASHINGTON, Oct 7 (Reuters) – The U.S. Senate approved legislation on Thursday to temporarily raise the federal government’s $28.4 trillion debt limit and avoid the risk of a historic default this month, but put off until early December a decision on a longer-lasting remedy.
The bill was approved in a 50-48 vote, following weeks of partisan fighting.
The breakthrough came less than two weeks before the US was set to be unable to borrow money or pay off loans for the first time ever.
The bill now has to be approved by the House of Representatives, and will then be sent to President Joe Biden to be signed into law.
The $480 billion increase, which would lift the debt limit to $28.9 trillion, is expected to be exhausted by Dec. 3, the same day that funding for most federal programs expires under a stop-gap measure passed earlier this month following another partisan standoff.
US lawmakers will still have to address this issue near the new December deadline to avert a default.
If the US defaults on debts, experts say it will severely hurt the country’s credit rating, plunge the global financial system into turmoil, and possibly lead to a self-inflicted recession.
What is the debt ceiling?
The US government spends more money than it collects in taxes, so it borrows to make up for the shortfall.
Borrowing is done via the US Treasury, through the issuing of bonds. US government bonds are seen as among the world’s safest and most reliable investments.
In 1939, Congress established an aggregate limit or “ceiling” on how much debt the government could accumulate.
The ceiling has been lifted on more than 100 occasions to allow the government to borrow more. Congress often acts on it in a bipartisan manner and it is rarely the subject of a political standoff.