How will the US debt ceiling agreement affect you and the global markets?

The White House and congress republicans reached a deal to raise the nation’s debt ceiling just a week before the Government ran out of money. The agreement implies policy changes.

The debt ceiling is the upper limit of money the US government can borrow to cover expenses: paying for federal programs, salaries, services, or debt and interests.

Every time the ceiling approaches, about 78 times in the last seven decades, Congress has raised it to avoid a default: the moment when the government runs out of money and stops responding to its obligations.

The battle to raise the debt ceiling and avoid economic disaster took weeks. Republicans requested significant spending cuts. President Biden compromised and agreed to make a few cuts with certain conditions.

Republicans agreed to a two-year suspension of the debt ceiling in exchange for $136 billion in cuts to government spending, which will affect some social programs.

According to the New York Times, the most significant part of the deal is limiting discretionary spending to 1% growth in 2025. That effectively means a budget cut because that percentage is lower than inflation.

The newspaper explains that the cuts will affect every expense not related to defense: domestic law enforcement, forest management, scientific research, and some social programs.

The deal also included, the Associated Press explains, an increase in work requirements for what was known as the 'food stamp' program. It also ends Biden's pause on student loan repayments.

Democrats guaranteed the defense and veteran care budget that Biden had planned. They also got some budget for benefits for homeless people and young people aging out of foster care.

The agreement's effects on international markets will also be positive because it avoids a US default that would have been disastrous for the global economy.

Experts cited by The Washington Post said that the default would have hit the stock markets firts. CNBC said: "Investors might panic, dumping Treasury bonds and triggering a deep sell-off in stocks."

The default would have affected the country's credit rating, which might have devalued the dollar. According to Deutsche Welle, US bonds are building blocks for the world's financial system.

Bad credit ratings would have made borrowing money difficult for the government and small businesses, potentially unleashing a recession.

It would have also raised interest rates for the Treasury. Credit cards, car loans, and mortgage rates are all tied to those interests. That would also make inflation grow.

The Treasury Department said the government would have had to prioritize spending. That could mean delays to the payment of millions of public sector workers.

Ultimately, no deal would have also affected social programs. The Washington Post explained that the Treasury would have had to choose between debt interests and federal programs like Medicare and Social Security.