US President Joe Biden signed a bill to raise the debt ceiling on Saturday. This prevents the US from meeting its financial obligations.
Last week, majorities in the U.S. House of Representatives and Senate approved the broader cap. The plan is now being drafted, and then Biden can sign it.
The debt ceiling determines how much the US federal government can borrow. Americans have already passed that threshold this year and without an adjustment, the Treasury Department will run out of money next Monday.
As a result, the United States can no longer pay many benefits, but, for example, no interest on government debt. The latter could mean chaos in financial markets.
Biden spoke from the Oval Office at the White House on Friday for the first time since taking office two years ago. “Crisis averted,” he said then. Typically, US presidents reserve a speech from the Oval Office for the most important and dramatic events, such as the September 11, 2001 attacks or the Space Shuttle Challenger explosion.
Requires Republican approval
Biden, a Democrat, and House Speaker Kevin McCarthy, a Republican, had already reached an agreement on the debt ceiling last Saturday. But the deal had to be approved by the US Congress, particularly the conservative wing of the Republican Party, which believed more cuts were needed.
Now that both houses of the House of Representatives have agreed, no further vote on raising the debt ceiling will be necessary until after the 2024 US presidential election.
Segmentation can lead to bad credit rating
Raising the debt ceiling is usually a routine task in the United States, but tensions between Republicans and Democrats are making it increasingly difficult. Credit rating agency Fitch has become more gloomy about America’s financial health.
Rating agencies now take into account that the US government’s credit rating will soon be downgraded. Now America scores even higher. A lower score means that lending to the US is considered riskier, meaning Americans may have to spend more on interest rates.
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