US debt fears wane after Senate deal
Obama ready to sign if passed by Congress
STOCKS in the US surged yesterday after Senate leaders said they had reached a deal to raise the government debt ceiling, one day before the US defaults on its debt.
The deal would avert a historic lapse in the government’s borrowing ability and a potentially damaging debt default, and reopen the government after a two-week shutdown.
US Senate Majority Leader Harry Reid and Senate Republican leader Mitch McConnell said leaders had come to an agreement, which will reopen the government until January 15 and raise the debt ceiling until February 7.
House of Representatives Speaker John Boehner would allow the deeply divided house to vote on the Senate plan for a shortterm increase in the debt limit and a reopening of government, which was expected to pass with mostly Democratic votes, sources said.
President Barack Obama’s spokesman said that the president was backing the deal in the Senate and would sign it if passed by the US Congress.
The deal as outlined by Senate leaders “achieves what is necessary” to remove the threat of default hanging over the economy, White House press secretary Jay Carney said. Mr Obama “looks forward to Congress acting so he can sign legislation”.
Without passage, the US Treasury would exhaust borrowing authority at the end of today, Mr Carney said, urging action by the House and Senate “as soon as possible”. The federal government has been partially shut down since the October 1 start of the 2014 fiscal year.
The gains added more than 1 percent to the major US indices, with the S&P 500 ending the day 1.37 percent higher at 1,721.30.
“Even though the market is moving up, this is a real historic event that is happening here, so there is pause and concern,” said Frank Davis, director of sales
and trading at LEK Securities, based in New York.
Emerging-market stocks advanced to a five-month high as the Senate crafted the agreement.
The JSE all share index ended the day 0.3% in positive territory.
“It’s the confirmation of what the market had been anticipating,” Walter “Bucky” Hellwig, who helps manage $17bn of assets at BB& T Wealth Management in Birmingham, Alabama, said in a telephone interview. “They kicked the can down the road a few months.”
The moves were a bruising political defeat for Republican conservatives who had demanded changes to Mr Obama’s healthcare law before they would agree to fund the government. It was unclear whether Mr Boehner’s leadership position will be at risk in the political fallout, but opinion polls show Republicans have taken a political beating in the showdown as they head into next year’s congressional elections.
“The deal we’ve got, you know the old saying, ‘we may have left a little bit on the table?’ We left everything on the table,” Republican senator Lindsey Graham of South Carolina said. “This has been a very bad two weeks for the Republican brand, conservatism.”
Asked by reporters if the fight for deficit reduction and changes to the healthcare law was over for now, Republican Representative Jim Jordan of Ohio said: “That appears to be where we are headed.”