Obama Signs Debt Bill; US Avoids Default

Posted August 2nd, 2011 at 8:10 pm (UTC-5)
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The United States can now meet its financial obligations without the threat of default after President Barack Obama signed a compromise debt ceiling bill Tuesday.

But the battle in Congress on just how much and where to cut government spending as part of that compromise could soon flare up again.

The deal that the House and Senate passed, and which the president signed, allows the government to keep borrowing money through 2012 in exchange for spending cuts of almost $1 trillion over the next 10 years. Few lawmakers say they like the deal. But all agree that the country could not be allowed to run out of money.

The agreement also creates a bipartisan budget committee that will seek up to another $1.5 trillion in deficit reduction. If the panel fails to reach an agreement, it would trigger automatic drastic spending cuts.

Mr. Obama says everything will be on the table for the commission, including such programs as Social Security and Medicare, which some Democrats say are untouchable. He also warns that there can be no more debt reduction without eliminating tax breaks for corporations and the wealthy — something many Republicans oppose.

The major credit rating agencies had threatened to downgrade the U.S. government bond rating because of the debt crisis. The Moody's agency said late Tuesday it will maintain the U.S.' top AAA rating, but warns that the outlook for the country is negative.

A downgraded credit rating would increase the government's cost to borrow money, and could raise interest rates on many consumer loans.

President Obama criticized U.S. lawmakers Tuesday, calling the debt crisis “just one more impediment” to economic recovery. He said it should not have taken the risk of a catastrophe to get lawmakers to work together.

Mr. Obama called the compromise a first step to ensuring that the country lives within its means. But he said the focus must return to creating jobs for the many Americans still out of work.

Democratic Senate Majority Leader Harry Reid criticized the bill because he says it puts the burden on the middle class and the poor. He blamed conservative Republicans with the Tea Party movement for preventing lawmakers from reaching a deal sooner

Republican Minority Leader Mitch McConnell said getting to the compromise was “messy.” But he also said it was just the “will of the people working itself out.” McConnell said while he is not satisfied with the cost-cutting measures in the bill, it is “a crucial step toward fiscal sanity.”

Treasury Secretary Timothy Geithner told ABC News that the political wrangling to reach a compromise shook the confidence of many Americans. He said their faith in the country was “very damaged by this spectacle.” Geithner said that while the deal helps the country's economy over the long-term, it does nothing to create jobs or spark immediate economic growth.