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US avoids default as last-minute deal is struck

Just 12 hours before the US defaulted on its debt, a deal has been reached, a Republican senator has said.

House Speaker John Boehner of Ohio arrives on Capitol Hill
House Speaker John Boehner of Ohio arrives on Capitol Hill
Image: AP Photo/Carolyn Kaster

Updated 22.50pm

THE PROSPECT OF a catastrophic US default on its loans was averted today, as Senate leaders agreed a deal that will raise the debt ceiling and reopen the federal government.

Republican senator Kelly Ayotte told AP that a deal was done, but she would leave it to Speaker of the House John Boenher to announce it.

“I understand they’ve come to an agreement but I’m going to let the leader announce that.”

It is understood that the deal will see the US have authority to borrow through 7 February and will fund the government departments which had been closed up until 15 January.

The deal will be voted on in the House, will be sped through Congress and signed by President Barack Obama.

The deal comes just twelve hours before the deadline Treasury Secretary Jack Lew had set for Congress to raise the current $16.7 trillion debt limit. Without action by lawmakers, he said, Treasury could not be certain it had the ability to pay bills as they come due.

In addition to raising the debt limit, the proposal would give lawmakers a vote to disapprove the increase. Obama would have the right to veto their opposition, ensuring he would prevail.

House and Senate negotiators would be appointed to seek a deficit-reduction deal, but there is no provision for federal agencies to have increased flexibility in coping with the effects of across-the-board cuts.

The proposed changes to the Affordable Care Act, Obamacare, will only be altered in one small way. Under the deal, those seeking subsidies will have to undergo stricter income verification.

Markets

The New York Stock Exchange bounced back from yesterday’s losses by 200 points on foot of the news.

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There had been dire warnings from the financial world a day after the Fitch credit rating agency said it was reviewing its AAA rating on U.S. government debt for possible downgrade.

John Chambers, chairman of Standard & Poor’s Sovereign Debt Committee, told “CBS This Morning” on Wednesday that a U.S. government default on its debts would be “much worse than Lehman Brothers,” the investment firm whose 2008 collapse led to the global financial crisis.

Billionaire investor Warren Buffett told CNBC he doesn’t think the federal government will fail to pay its bills, but “if it does happen, it’s a pure act of idiocy.”

AP contributed additional reporting

- First published 5.50pm

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