U.S. Debt Talks: It’s A Deal!

With the debt clock ticking fast, U.S. lawmakers finally seemed to make progress on their debt talks as they struck a deal over the weekend. Democrats and Republicans decided to set their differences aside as they agreed on a plan that would raise the U.S. debt ceiling by $2.4 trillion in three stages and also implement $900 billion in spending cuts over 10 years.

Aside from that, the plan also includes the creation of a panel of lawmakers who would find ways to trim the U.S. deficit by an additional $1.5 trillion. This special committee can make use of almost everything under the sun, from a complete tax overhaul to modifications in government programs, and must have their suggestions in before Thanksgiving this year. Of course, these recommendations are subject to approval by the U.S. Congress.

Last but not least, the debt plan also calls for U.S. lawmakers to vote on budget amendments to the Constitution to ensure that the U.S. avoids these nail-biting debt scenarios in the future.

Sounds like a plan, doesn’t it? Now it’s up to the credit rating agencies to decide whether this debt deal is good enough for the U.S. to hold on to its precious triple-A rating. With an AAA stamp on its papers, the U.S. government won’t need to pay extra to its creditors to compensate for higher default risk, and the U.S. would have an easier time paying its debt. That would also mean less chance of a default!

On the flip side, the debt deal still leaves much to be desired, as many of the itty-bitty details need to be ironed out as well.

For one, while spending caps of $900 billion will be implemented over the next 10 years, the decision of which programs to cut will be left to the new super committee. Considering that these congressional committees are made of both of Republicans and Democrats, this could get ugly.

Moreover, we are most likely in for a prolonged process and debate with regards what to do with the tax code (something the Gang of Six’ proposal has touched on) and with Social Security and Obamacare.. I mean Medicare.

Over the next few days (or should I say hours?), we’re about to see history in the making. Chances are, the Senate will act together and vote in the package, which would make it extremely difficult for the House to kill the deal. Then again, what other choice do they have? Time is of the essence and delaying a vote will have huge repercussions on the U.S. economy.

Even though this smaller deal is most likely to pass, there’s no guarantee that U.S. has averted a crisis. Taking into account how huge Uncle Sam’s deficit is and the uncertainty with what exactly will be cut, there still remains a slight chance that the U.S.’ top-notch credit rating may take a hit.


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