Better Late Than Never

1 point

15 years ago

10 hours before the government would have run out of money to pay bills, Obama signed into law a new bill that will raise the U.S. debt ceiling and cut at least $2.1 trillion over the next 10 years. It’s interesting to note that no public ceremony was held to sign the bill and Obama never congratulated Congress on approving the bill. He even jabbed that it shouldn’t take the risk of default to get "folks in this town to work together and do their jobs."

While the new debt deal was an important milestone towards fiscal responsibility, a lot of uncertainty still remains. For one, the bulk of the cuts in spending will be decided by a committee of 12 (6 Republicans, 6 Democrats) who will determine a further $1.5 trillion in spending cuts by Nov. 23. The committee is required to come up with at least $1.2 trillion in cuts. If they can’t agree on specific cuts, the reductions in spending will be automatically allocated to defense and domestic spending (50%/50% split). Despite the agreement, there is still no guarantee that the plan could keep the U.S.’s credit rating from being cut. Fitch, one of the three main rating agencies that rate debt issued by countries, said that the new agreement to raise the debt ceiling and make spending cuts was an important first step but "not the end of the process." The agency will finish its credit work by the end of August, and given these recent comments, it’s definitely possible that the U.S. could lose its AAA credit rating.