Senate Reaches Debt Limit Deal To Avert Economic Havoc

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The Balance

That’s how many months Congress will have to resolve the debt ceiling battle, now that Democratic and Republican lawmakers have agreed on a deal to extend an Oct. 18 deadline that is crucial to the economy.

The deal to extend the ceiling into early December—announced Thursday by Senate Democratic Majority Leader Chuck Schumer—ends, at least for the moment, a congressional standoff over the self-imposed federal debt limit, which restricts how much money the government can borrow to pay for spending it’s already committed to.  But the new deadline could once again leave Congress battling over the debt ceiling in December just as it faces another potential government shutdown over federal funding, a separate, less serious issue that would still impact the economy.

“It is our belief that this week's potential resolution on the debt ceiling simply moves the problem from October to December,” Michael Pugliese, an economist at Wells Fargo Securities, said in an analysis Thursday. ”Congress may find itself in early December in the same place it was in late September: facing a possible government shutdown and looming debt ceiling deadline.”

The debt ceiling was reached on Aug 1., and since then the Treasury Department has used financial maneuvers to avoid defaulting on the government’s obligations while warning that it would run out of ways to do so around Oct. 18. Breaching that deadline could have caused havoc in the financial system and even sent the U.S. economy into a recession, economists warned. Despite frequent clashes about the debt ceiling over the years, Congress in modern history has always averted default

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