The nation breathed a collective sigh of relief this evening when President Obama announced that a compromise had been reached so that America will avoid going into financial default. The agreement contains a plan to cut two trillion dollars in Federal spending over the next ten years. While lawmakers have not yet voted on the proposal and are not likely to vote until some time tomorrow at the earliest, there have been indications from both sides that it should be able to pass.
There is not too much information out there just yet about exactly what the deal looks like, but one thing is certain. If a resolution had not been reached the effect on our already fragile economy would have been devastating. Although there had been discussion of tax increases for the wealthy, these increases did not make it into the final package, which consists of spending cuts and an increase in the United States Treasury’s ability to borrow money. In the spirit of true compromise, some of the spending cuts will come from domestic programs and some will come from defense spending. Prior to the agreement, Republicans had tried to make defense spending cuts off limits and the Democrats had tries to do the same for domestic programs. Both parties had to move significantly from their original positions in order to arrive at the deal.
The plan calls for two phases for both the debt limit increase and the spending cuts. One will take effect when the package passes, the other will take effect later in the year after tough discussions take place regarding things like entitlement reform and tax reform. A bipartisan committee of Congress would be responsible for having those discussions and coming up with a plan by November, when it will be voted on. The compromise in Washington comes just days before the nation would have officially entered default on August 2. Financial markets all over the world have already opened for Monday’s business, and the reports of rising stocks are encouraging.