US debt ceiling: What is it and how devastating would a default be?
Efforts to prevent the United States reaching its debt limit and to avert a potentially catastrophic default on loan repayments on Wednesday move to the House of Representatives, where the vote on the proposal to raise the debt ceiling takes place.
President Joe Biden and leader of the House of Representatives, speaker Kevin McCarthy, had spent the Monday memorial day holiday shoring up support among Democrats and Republicans respectively for the agreement.
The pair had agreed a plan on Saturday for the debt limit to increase and for spending caps and work requirements to be introduced. The agreement between the leaders must now gain approval of the two chambers of congress in less than a week before the default deadline is reached on Monday.
A single opposition vote could derail progress through congress and bring the US into its first ever default, with potentially disastrous consequences for the global economy.
What’s happening this week?
Members of the Republican majority House of Representatives are to vote on the proposed agreement on Wednesday. If approved, the proposal will move to the Democrat-controlled Senate on Friday.
But it first faces an uphill battle in the House as Republican representatives have already voiced their opposition.
Ten far right leaning House Republicans are expected to vote no, believing controls on spending in the agreement to be insufficient. Republicans generally seek to shrink, rather than expand, the country’s debt.
Some Democrats too are unhappy with the deal. The deal’s planned 3.3% increase in defence spending may lead to members of both parties seeking amendments to make sure military spending rises in line with inflation, which in the US is just below 5%.
Passage in the House on Wednesday is key to bringing the vote to the Senate on Friday.
Read more
Could US default on its debt? UK should be praying it doesn’t
What’s in the debt ceiling deal?
The main purpose of the deal is to increase the US debt limit from $31.4trn (£25.3trn). The agreement does this by suspending the borrowing limit until January 2025 – after the next US presidential elections – rather than setting a new level.
Biden and the Democrats have made concessions to Republicans in the hopes they will back a deal. As Republicans are sceptical of government spending and seek smaller government, the deal promises spending cuts and policy concessions.
Quite how deep those spending cuts are depends on who you ask.
The White House is saying government spending would come down by $1trn, though official figures have not been released. The New York Times are reporting cuts of $136bn (£109.7bn) will be made.
Under the agreement, some social welfare recipients will be subject to new work requirements.
The bill would also end the student loan freeze Biden introduced and require former students to recommence payments.
It also revokes funding for the US tax collection authority, the IRS. Democrats had dedicated $80bn for the authority to hire more employees to boost tax enforcement, collecting more funds to implement state spending plans.
Ultimately the agreement is trying to stop a government shutdown. A deal is needed because any extension, or pause in the debt limit, needs the approval of congress.
Why does defaulting matter?
As the world’s largest economy has never before defaulted the exact consequences are uncertain but are likely to be catastrophic to the US and global economy.
The US would run out of money and no longer be able to pay its bills. Civil servant wages, social welfare payments, health insurance – known as Medicare – would go unpaid.
If the US no longer pays interest on its bonds, IOUs it issued to raise funds, it would default on debt payments.
The country’s credit rating would go down If it defaults on debt payments. A vital way the country raises money – selling bonds – could be at risk as markets will see US government debt as insecure and charge more to lend to the US.
Economic research organisation Moody’s Analytics said a prolonged period where US bills can’t be paid would lead to a nearly 20% drop in stock prices, economic contraction of 4% and the loss of more than seven million jobs.
The White House Council of Economic Advisers estimated the economy could shrink by as much as 6.1% after such a prolonged period.
Global shocks
The country would likely enter recession, which would harm the global economy as the US trades with so much of the world and is the bedrock of the worldwide financial system.
A fall in the value of US bonds would also harm economies across the world as investors could become concerned about other countries defaulting and seek to be paid more to lend to other nations.
US bonds and stocks are owned by pension funds across the world and with a drop in their values would come a drop in pension values.
US Treasury Secretary Janet Yellen
When could default happen?
To prevent default an agreement must be reached by Monday 5 June, which the US Treasury Secretary, Janet Yellen, set as the deadline to raise the debt ceiling beyond the current $31.4trn (£25.3) limit.
A date as early as 1 June had been thought to be the default date before the precise deadline was set by Ms Yellen.
The UK and US have agreed a trade deal, with Sir Keir Starmer and Donald Trump confirming the announcement during a live televised phone call.
It is the first trade deal agreed after Mr Trump began his second presidential term in January, and after he imposed strict tariffs on countries around the world in April.
Sir Keir said the “first-of-a-kind” deal with the US will save thousands of jobs across the UK, boost British business and protect British industry.
Politics latest: Trump and Starmer say trade deal just the start
The deal includes:
• Lowering 27.5% tariff on British car exports to the US to 10%, affecting 100,000 vehicles each year
• UK steel and aluminium industries will no longer face any tariffs after they had 25% duties placed on them
• Beef exports allowed both ways
• UK to have “preferential treatment whatever happens in the future” on pharmaceuticals, the president said.
However, there is a still a 10% tariff on most UK goods imported into the US after Mr Trump imposed that duty on most countries’ exports last month.
Mr Trump said the “final details” of the agreement were still being “written up”.
Please use Chrome browser for a more accessible video player
Watch full call with Trump and Starmer
Trade minister Douglas Alexander told parliament the UK has “committed to further negotiations on tariff reductions”.
MPs will be able to debate the deal and any legislation needed to implement it, he added.
Sir Keir said “this is a really fantastic, historic day” that will “boost trade between and across our countries”, while Mr Trump said the agreement would be a “great deal for both countries”.
The president said the deal will make both the UK and the US “much bigger in terms of trade” as he thanked Sir Keir, who he said has been “terrific for his partnership in this matter…we have a great relationship”.
Sir Keir said it was achieved by not playing politics, and insisted the UK can have good trade relations with both the US and the EU.
Red lines on beef and chicken
The PM said the UK had “red lines” on standards written into the agreement, particularly on agriculture.
Mr Alexander told the Commons: “Let me be clear that the imports of hormone-treated beef or chlorinated chicken will remain illegal.
“The deal we’ve signed today will protect British farmers and uphold our high animal welfare and environmental standards.”
Read more:
UK and India strike ‘historic’ trade deal
Starmer faces rebellion from Labour MPs over welfare reforms
Please use Chrome browser for a more accessible video player
Sky challenges Trump on trade deal
‘American beef is the safest’
US agriculture secretary Brooke Rollins said the deal will “exponentially increase our beef exports”, and added: “To be very clear, American beef is the safest, the best quality, and the crown jewel of American agriculture for the world.”
On whether the UK will have to accept all US beef and chicken, Mr Trump said: “They’ll take what they want, we have plenty of it, we have every type, we have every classification you can have.”
Hinting the US will move towards higher welfare practices, he said US health secretary Robert F Kennedy Jr “is doing a tremendous job and he’s probably heading toward your system with no chemical, no this, no that”.
‘A Diet Coke deal’
Previous UK governments have attempted – and failed – to secure a free trade agreement with the US, but Sir Keir had made it a high priority.
Conservative shadow trade secretary Andrew Griffith chastised the deal, saying the UK is still in the same category as Burundi and Bhutan.
“It’s a Diet Coke deal, not the real thing,” he told the Commons.
US
Man accused of harassing Jennifer Aniston for two years before crashing car through gates of her home
Three former police officers in the US have been found not guilty of murder over the death of motorist Tyre Nichols.
Tadarrius Bean, Demetrius Haley and Justin Smith were acquitted by jurors following a nine-day trial at Tennessee state court.
The former Memphis officers were also found not guilty of aggravated assault, aggravated kidnapping, official misconduct and official oppression.
Mr Nichols, a father of one, died three days after officers punched, kicked and hit him with a baton in January 2023 as he was just yards from his home.
The defendants hugged each other after being acquitted of the charges. Pic: Commercial Appeal/USA Today Network/AP
The 29-year-old’s death and a video of the incident – in which he cried out for his mother – sparked outrage in the US including nationwide protests and led to police reform.
Civil rights attorney Ben Crump, who represents Nichols’ family, described the verdicts as a “devastating miscarriage of justice”. In a statement, he added: “The world watched as Tyre Nichols was beaten to death by those sworn to protect and serve.”
Memphis District Attorney Steve Mulroy said he was “surprised that there wasn’t a single guilty verdict on any of the counts” including second-degree murder. He said Mr Nichols’ family “were devastated… I think they were outraged”.
Former police officers Tadarrius Bean, Demetrius Haley, Justin Smith were accused of second-degree murder. Pic: Memphis Police Dept/AP
But despite the three defendants being acquitted of state charges during the trial in Memphis, they still face the prospect of years in prison after they were convicted of federal charges of witness tampering last year.
Two other former officers previously pleaded guilty in both state and federal court. Desmond Mills Jr. gave evidence as a prosecution witness, while Emmitt Martin was blamed for the majority of the violence.
Sentencing for all five officers is pending.
Tyre Nichols’ death sparked street protests in January 2023 in Memphis and across the US. Pic: AP
Video evidence showed Mr Nichols was stopped in his car, yanked from his vehicle, pepper-sprayed and hit with a Taser. He broke free and ran away before the five police officers caught up with him again, and the beating took place.
Prosecutors argued that the officers used excessive, deadly force in trying to handcuff Mr Nichols and were criminally responsible for each others’ actions.
They also said the officers had a duty to intervene and stop the beating and tell medics that Mr Nichols had been hit repeatedly in the head, but they failed to do so.
The trial heard Mr Nichols suffered tears and bleeding in the brain and died from blunt force trauma.
The defence suggested Mr Nichols was on drugs, giving him the strength to fight off five strong officers, and was actively resisting arrest.
In December, the US Justice Department said a 17-month investigation showed the Memphis Police Department uses excessive force and discriminates against Black people.
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway