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US House of Representatives Passes Bill to Raise Debt Ceiling, Averting Potential Default

In a significant development for the US economy, the House of Representatives has approved a bill to raise the country's debt ceiling, bringing Washington one step closer to averting a historic default. The bill, which received a 314-117 majority vote late on Wednesday, represents a victory for Republican Speaker of the House Kevin McCarthy. Notably, 165 Democrats joined forces with 149 Republicans to support the legislation, enabling McCarthy to overcome a rebellion within his own party.

Although the House vote was seen as the primary hurdle for the bill, it still needs to pass the Senate and subsequently be signed by President Joe Biden to take effect before the imminent June 5 deadline. The bipartisan nature of the agreement, if passed into law, would signal that Washington is capable of functioning despite the current era of heightened political polarization. Leading up to the vote, economists and business leaders had sounded the alarm, warning that a default would have catastrophic consequences for global financial markets and the overall economy.

Of the 222 Republicans, 71 voted against the measure, with many of them being members of the hardline House Freedom Caucus. President Biden hailed the House's decision, emphasizing the importance of a bipartisan compromise that can garner support from both parties. He urged the Senate to pass the bill swiftly to ensure its timely implementation.

In response to the successful vote, Speaker McCarthy expressed his satisfaction, stating, "Tonight we all made history because this is the biggest cut and saving this Congress has ever voted for." He also emphasized that prioritizing the interests of the American people required taking the challenging path rather than opting for the easy way out.

The financial markets reacted positively to the news, with European and US equity futures registering gains during Asian trading. The Euro Stoxx 50 index was projected to rise by 0.7%, while the S&P 500 was expected to experience a 0.1% increase. In Japan, the Topix rose by nearly 1%, and the Hang Seng in Hong Kong showed a 0.7% uptick.

Over the weekend, Speaker McCarthy had announced that he had reached an agreement with the White House to suspend the debt ceiling until after the upcoming presidential election. The deal also encompasses federal spending limits for the next two years, expedites the permitting process for major energy projects, reduces new funding for the Internal Revenue Service, and introduces new requirements for programs like food stamps and other social safety nets.

Treasury Secretary Janet Yellen had previously warned that without raising the debt ceiling, the government would exhaust its funds and be unable to meet its obligations by June 5. While McCarthy and the White House remained optimistic about the bill's passage, critics from both parties voiced their opposition. Progressive Democrats, including Alexandria Ocasio-Cortez and Pramila Jayapal, criticized Biden for capitulating to Republican demands, while hardline conservatives from the Freedom Caucus argued that the spending cuts did not go far enough.

As the bill now heads to the Senate, it is likely to face opposition from lawmakers on both sides of the aisle. Progressive Senator Bernie Sanders voiced his concerns, stating that he could not vote for the legislation as it imposes spending cuts without raising taxes on wealthy Americans. However, Senate Minority Leader Mitch McConnell, a Republican, expressed his support and pledged to back the deal without delay. Senate Majority Leader Chuck Schumer vowed to expedite the process, emphasizing the urgency to avoid a federal government default, which has never occurred before.

Given the narrow margin of control in the House by Republicans and the significant number of Republicans initially opposing the bill, McCarthy relied on the support of Democrats to secure its passage. House Democrat Hakeem Jeffries announced his full support for the bill, acknowledging that while it may not be perfect,it was a necessary compromise in a divided government.

The passage of the bill to raise the debt ceiling represents a crucial step forward in preventing a first-ever default and safeguarding the hard-earned and historic economic recovery of the United States, according to President Biden. The looming threat of default had generated widespread concern among economists and business leaders, who warned of the catastrophic consequences such an event could have on global financial stability and the overall economy.

The bipartisan agreement reached between Republican Speaker Kevin McCarthy and the White House is seen as a significant achievement, as it demonstrates that Washington can still function and find common ground despite deep political divisions. McCarthy, addressing reporters after the vote, referred to the legislation as the largest cut and saving ever approved by Congress, emphasizing the prioritization of American citizens and the refusal to take the easy way out.

Following the news of the bill's approval in the House, European and US equity futures experienced positive momentum during Asian trading. Market projections indicated a potential 0.7% increase for the Euro Stoxx 50 index and a 0.1% rise for the S&P 500. The Topix index in Japan surged by nearly 1%, while the Hang Seng index in Hong Kong showed a 0.7% uptick, reflecting investor optimism in response to the avoidance of a potential default.

The agreement not only raises the debt ceiling but also includes provisions for federal spending over the next two years. Additionally, it expedites the permitting process for major energy projects, introduces new requirements for social safety net programs like food stamps, cuts funding for the Internal Revenue Service, and encompasses several other measures aimed at fiscal responsibility and efficiency.

However, despite the House's approval, the bill still faces challenges in the Senate, where opposition is expected from lawmakers on both sides of the aisle. Progressive Senator Bernie Sanders voiced his reservations, citing concerns about spending cuts without sufficient tax increases on wealthy Americans. On the other hand, Senate Minority Leader Mitch McConnell expressed his support for the deal and pledged to vote for it without delay. Senate Majority Leader Chuck Schumer vowed to expedite the legislative process, urging colleagues to act swiftly to avoid the first-ever default in US history.

The successful passage of the bill in the House relied on the support of Democrats, given the narrow margin of control by Republicans and the sizable number of Republican members initially opposed to the legislation. House Democrat Hakeem Jeffries affirmed his backing for the bill, acknowledging that, in a divided government, the pursuit of perfection should not hinder the accomplishment of the greater good.

While the bill's ultimate fate in the Senate remains uncertain, its passage in the House marks a significant milestone in the ongoing effort to avert a potential default and protect the economic stability of the United States. The next few days will be crucial as the Senate takes up the bill, with the aim of swiftly reaching a bipartisan consensus and delivering it to President Biden's desk for his signature.

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