Leader of Senate Democrats Announces Deal on Short-Term Debt Ceiling Extension to Avoid Default

Treasury Secretary Janet Yellen has spent weeks urging lawmakers to put aside their partisan differences for the sake of an agreement on the debt limit, warning that the United States would run out of money by 18 October and default on its massive $28 trillion+ federal debt if a solution to the deadlock was not found.

Democratic House Majority Leader Chuck Schumer has announced that an emergency agreement has been reached to extend the debt ceiling through early December to stave off economic catastrophe.

"I have some good news. We've reached an agreement on an extension of the debt ceiling through early [December] and its our hope that we can get this done today," Schumer said, speaking on the Senate floor on Thursday.

#BREAKING: Senate Majority Leader Chuck Schumer (D-NY) says an agreement has been reached to extend the debt ceiling through early December. pic.twitter.com/eKKqiaAdMZ

— Forbes (@Forbes) October 7, 2021

Republican Senate Minority Leader Mitch McConnell appeared to confirm that a deal had been reached, stating that "Republican and Democratic members and staff negotiated through the night in good faith."

"The Senate is moving toward the plan I laid out last night to spare the American people a manufactured crisis," McConnell said, also speaking from the Senate floor.

A Senate aide told Reuters that the emergency deal would see the debt limit raised by $480 billion based on a Treasury estimate of what was required to keep the government funded and avoid a default on America's vast debt.

Speaking to MSNBC earlier in the day, Democratic Senator Sheldon Whitehouse boasted that the Republicans had "folded" on their previous hardline negotiating position.

"I think their play was to make Mitch take us as close to a debt limit crisis as we can to see if the Democrats fold, and when we didn't, they realised that a global economic meltdown led by a US debt limit crisis was gonna blow them up with everybody else. And so they pulled the plug on the plan, Mitch folded, and now we've got time to go ahead and do Build Back Better," Whitehouse said, referring to the Democrats' $3.5 trillion in new proposed social and climate spending.

Former president Donald Trump issued a statement accusing McConnell of surrendering to the president's party.

"Looks like Mitch McConnell is folding to the Democrats, again," Trump wrote late on Wednesday. "He's got all the cards with the debt ceiling, it's time to play the hand. Don't let them destroy our country!"

Senate Republicans led by McConnell conceded a temporary solution to the debt crisis to allow Democrats to pass an emergency debt limit extension without the reconciliation negotiations previously demanded by the GOP, or the need to remove the filibuster rule requiring a supermajority of 60 senators to support a debt ceiling increase in order to allow Democrats to raise the debt limit without Republican support.

The temporary agreement follows weeks of warnings from Treasury Secretary Yellen, who indicated that unless Congress acted to raise or suspend the debt limit, the Treasury would likely exhaust its "extraordinary measures" tools aimed at staving off a default by 18 October. Yellen has warned that a default on America's debts would have "catastrophic" consequences, including a massive global economic crisis, skyrocketing interest rates, and the potential end to the dollar's status as the world's de facto reserve currency.

On Tuesday, President Biden said removing the Senate's filibuster rule was "a real possibility" as a means to approve a debt limit increase without Republican support. However, for the 60 vote rule to be thrown out, the GOP would need to approve doing so. Democrats previously rejected reconciliation – i.e. negotiations with Republicans, which may require compromising on Biden's signature Build Back Better budget bill – as a means to reach agreement on the debt ceiling, suggesting that reconciliation negotiations were too time-consuming and complicated.

The deadlock over the debt ceiling is a consequence of the current composition of the Senate, which is split evenly between Republicans (who control 50 seats) and Democrats (who control 48 seats but also enjoy the support of two independents).

America's national debt is rapidly approaching the $29 trillion mark. Congress first introduced the debt ceiling - or a limit on US federal government borrowing, in 1917 during the First World War. At that time, the borrowing rate was capped at a "mere" $11.5 billion (equivalent to about $245 billion today). Since then, the debt ceiling has been raised over 100 times, allowing Washington to fund a range of otherwise prohibitively expensive projects – from the fight against Nazi Germany and Imperial Japan during World War II to the competition against the Soviet Union during the Cold War to today's massive $700 billion+ annual military budgets to "contain" China and Russia.