The U.S. government has reached a tentative deal to suspend its debt ceiling. Bitcoin and the broader crypto market reacted positively to this news.
On May 27, House Speaker Kevin McCarthy tweeted that he and President Biden “came to an agreement in principle that is worthy of the American people.” This deal ends months of tense negotiations between the Democrat president and the Republican-led House of Representatives over the $31.4 trillion debt ceiling.
The bone of contention between the parties has been cutting non-defense domestic spending. The Republicans want to slow U.S. debt growth by cutting spending, while the Democrats want to increase taxes on the wealthy and corporations to reduce debt.
President Biden Describes Deal as ‘Compromise’
Speaking on the deal, President Biden described it as a compromise. Biden said:
“[This] is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone.”
There were concerns that the stalemate over the debt ceiling could lead to a U.S. default which could have a disastrous effect on the economy. This was a view shared by Biden, who noted that a “[default] would have led to an economic recession, retirement accounts devastated, and millions of jobs lost.”
According to the Treasury Department, the federal government could run out of money for all its obligations without a deal by June 5.
The new deal will suspend the debt limit until January 2025 and cap spending in the 2024 and 2025 budgets. Reuters reported that it would also claw back unused COVID funds, adding that there are extra work requirements for food aid programs.
Meanwhile, the deal is still subject to congressional approval, meaning bi-partisan support will be crucial for its passage.
Bitcoin Bounces Above $27K
With the traditional markets closed, the best signal of market reaction is the crypto market which is up by 1.3% in the past few hours. Bitcoin climbed back above the $27,000 level during early training hours today, according to BeInCrypto data. Other flagship digital assets like Ethereum, Cardano, BNB, and Dogecoin also recorded gains.
Earlier in the week, Tether CTO Paolo Ardoino said the U.S. would unlikely default on its debt. This was a view shared by many within the crypto industry who believed a default would be catastrophic for the economy.
Meanwhile, the drama around the recent debt ceiling negotiations has led several experts, including Nobel-winning economist Paul Krugman to call for the country to abolish the debt ceiling.
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