The Debt Deal!

President Barrack Obama signed a legislation to raise the country's debt ceiling in exchange for cuts in government spending, after Congress voted in favour of a bipartisan compromise deal. It raises the debt limit by up to $2.4tn (£1.5tn) from $14.3tn, and makes savings of at least $2.1tn in 10 years.

The U.S. thus avoided a disastrous default on the American debt. Without legislation in place it was feared that the Treasury would run out of cash needed to pay all its bills which in turn  could interrupt payments to investors in Treasury bonds, recipients of Social Security pension checks, anyone relying on military veterans' benefits and businesses that do work for the government. This would consequentially severely damage the economy.

Even after the legislation has been implemented, there are fears that the last-minute sparring could shake rating agencies' confidence and harm the country's Triple-A credit rating. Furthermore, even though the compromise deal has been passed, it has deeply angered both conservative Republicans and liberal Democrats. They contend that the bill still would cut too little from federal spending.

President Obama will also turn his to other measures required to prevent the US economy from hitting back into recession. These could include an extension of a payroll tax cut and approval of stalled trade deals with Panama, Colombia and South Korea. The bitter fight over raising the debt ceiling has already damaged the standing of Obama and lawmakers.

Americans further have to be convinced about the need for more tax revenue, and that it would be better to raise taxes on wealthier Americans to preserve the social safety net. Obama has already criticized the tax cuts by former President Bush saying that they were to no avail. For such measures a bipartisan congressional committee has been created under the debt deal to recommend ways to cut the deficit by the end of the year. Increased tax revenues are anticipated to emerge from the recommendations of the committee. They point to some proposals for raising taxes that have already been floated by a bipartisan group of senators.

The law puts forth significant cuts to U.S. federal spending and hence is expected to buoy global investors and reduce the chances of the Treasury bonds undergoing a credit downgrade. This would increase the cost of borrowing for the government and the consumers.

Though the deal may not bring tremendous startlingly tremendous benifits to the US economy, a total disaster has been avoided!!!