President Barack Obama said tonight that leaders of both parties in the U.S. House and Senate had approved an agreement to raise the nation’s debt ceiling by $2.1 trillion and cut the federal deficit by as much as $2.5 trillion over a decade, a deal that must now be sold to Congress.

“The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said at the White House. “This compromise does make a serious down payment on the deficit-reduction we need. Most importantly it will allow us to avoid default.”
Congressional leaders reached a bipartisan agreement to raise the debt ceiling by at least $2.1 trillion, sufficient to serve the nation’s needs into 2013. They are preparing to sell to members the deal to cut $917 billion in spending over a decade, raising the debt limit initially by $900 billion, and to charge a special committee with finding another $1.5 trillion in deficit savings by the year’s end. They confront an Aug. 2 deadline for approval of the agreement.
“This goes a long way to reducing the risk of default by the U.S. government,” Tom Quarmby, head of regional banking research at Barclays Capital in Hong Kong, said in a Bloomberg Television interview. While many hurdles remain, the deal “gets them out of a lot of trouble in the near term,” he said.
------------------Market reaction
The dollar and oil prices climbed, and gold fell. U.S. currency rose 1.3 percent to 77.79 yen and 0.2 percent to $1.4376 per euro at 9:44 a.m. in Tokyo. Gold slid 1.1 percent to $1,610.70 an ounce. Crude oil for September delivery rose 1.6 percent to $97.19 a barrel on the New York Mercantile Exchange.
Futures on the benchmark Standard & Poor’s 500 Index of stocks ended a seven-day losing streak, gaining 1.5 percent to 1,308 as of 10:54 a.m. in Tokyo.
With just two days left before the Treasury Department had said the nation would default without additional borrowing authority, both sides made concessions. Republicans dropped their insistence on withholding some of the borrowing authority until future spending cuts had been made and a balanced budget amendment to the Constitution had been passed by Congress.
-------------Tax revenue
The White House agreed to forgo an automatic tax increase as one of the consequences to kick in if no debt-reduction law is enacted by Christmas.
Obama has an opportunity to increase revenue in the future if he opts to allow tax cuts enacted under George W. Bush to expire as scheduled in 2013. Even if Obama lost his re-election campaign next year, he could veto legislation to extend those cuts before leaving office -- raising $3.5 trillion.
Shortly before Obama spoke, Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell took to the Senate floor to endorse the accord. Reid said “reasonable people” were able to agree on a deal and the nation and Congress were “moving forward together.” Reid, of Nevada, said Senate Democrats would meet tomorrow at 11 a.m. to discuss the package.
The agreement calls for cutting $917 billion over a decade and immediately raising the debt limit by $900 billion, then forming a special congressional committee to find another $1.5 trillion in deficit savings by year’s end, according to a summary Speaker John Boehner circulated to House Republicans.
-----------------Automatic cuts
If the super-committee’s work failed to yield at least $1.2 trillion in debt reduction, sweeping automatic spending cuts would go into effect. These would inlcude cuts in defense programs and Medicare, although other programs -- including Social Security, Medicaid veterans, and civil and military retirement -- would be exempted. Cuts to Medicare spending would only affect provider reimbursement rates, not benefits, and would be limited to 2 percent.
In a nod to fiscally conservative and Tea Party-aligned lawmakers who wanted to condition any borrowing boost on passage of a balanced-budget amendment to the Constitution, the measure calls for a vote of both houses of Congress on such a measure sometime after Oct. 1 and by the end of the year.
It would allow Obama to ask for the second debt-ceiling increase after the super-committee’s deficit-reduction recommendations were enacted or after the constitutional amendment was sent to the states.
Still, even if neither of those things happened, Obama would be able to get the remaining $1.5 trillion debt-ceiling extension and the automatic spending cuts would go forward.
Congress could try to block the borrowing increase with a disapproval resolution, yet would almost certainly fail to muster the two-thirds majorities in the House and Senate to override the president’s veto.
(Source: Bloomberg)