Senate leaders on Wednesday announced a deal to end the partial government shutdown and avoid a possible U.S. default as soon as the end of this week, and a key GOP conservative said he wouldn’t try to block the measure.
The news of a deal brought some relief to Wall Street as well as Washington, where the shutdown reached a 16th day with the government poised to lose its ability to borrow more money to pay bills on Thursday.
Senate Majority Leader Harry Reid hailed the agreement he worked out with his GOP counterpart Mitch McConnell as “historic,” saying that “in the end, political adversaries put aside their differences.”
Now the question becomes whether the agreement can win approval in the Senate and then the House to reach President Barack Obama’s desk, perhaps by the end of Wednesday to ensure there is enough cash on hand for all U.S. debt obligations and bills.
Obama praised Senate leaders for reaching a compromise, and urged Congress to act quickly, White House spokesman Jay Carney said.
“As soon as possible is essentially the recommendation we have from here,” he said.
Warnings of default Looming:
Despite warnings by Obama and economists that a U.S. default would spike interest rates and could have catastrophic impacts at home and abroad, King said he’s not too concerned if the government passes Thursday’s deadline to raise the borrowing limit.
“It’s just a date they picked on the calendar,” he said, adding that the government will still be able to pay the interest on its debt. “I’m more concerned about market reaction than I am of default itself.”
Thursday marks the day the Treasury Department will run out of special accounting maneuvers to keep the nation under the legal borrowing limit. From that point on, it will have to pay the country’s incoming bills and other legal obligations with an estimated $30 billion in cash, plus whatever daily revenue comes in.
The White House had said that the U.S. would lose its borrowing authority on Thursday, leaving it only with cash on hand to pay bills and therefore at risk of default. Carney clarified Wednesday that the borrowing authority would continue through Thursday.
The expectation is that the Treasury will be able to pay bills in full for a short time after Thursday, but exactly how long remains unclear. According to the best outside estimates, the first day the government will run short of cash could come between October 22 and November 1.
Officials warn that an unknown is whether creditors such as foreign countries that traditionally roll over their U.S. bond holdings could decide to instead cash out, creating a potentially major payout that the government would lack funds to fulfill.