With America teetering on the edge of the fiscal abyss, Congress and the White House agreed to a deal Wednesday ending the federal government shutdown and averting a historic default on the nation’s debt -- well, at least for a little while.
The stakes in the political poker game couldn’t have been much higher. An NBC News/Wall Street Journal Poll conducted days earlier in the impasse revealed that 60 percent of Americans would replace every single member of Congress -- including their own -- if they were given the chance.
And with only hours remaining before the U.S. breeched its sovereign debt limit of $16.7 trillion, lawmakers finally worked out a compromise.
The deal approved late Wednesday by Congress, and signed into law by President Obama reopens the federal government through Jan. 15 and permits the Treasury to add to America’s cavernous 16.7 trillion debt – but only through Feb. 7.
While the compromise was hammered out in the democratically controlled Senate, 87 House Republicans broke ranks with hardliners who originally tried to use the fiscal deadlines to derail the Obama Administration’s three-year-old health care law.
In addition to ending the shutdown and averting what could have turned into a much more serious fiscal fiasco, the compromise authorized back pay for hundreds of thousands of federal employees.
Barriers were removed at federal memorials and National Park Service sites early Thursday, and thousands of federal workers returned to work after more than two weeks of furloughs. .
The compromise ended a Washington-created crisis that closed much of government for 16 days, rattled global markets and threatened to challenge the status of U.S. debt as a nearly risk-free trade.
While few analysts expected a default, some investors sold U.S. Treasuries over concerns about possible payment issues, while others delayed purchasing stocks that might be sensitive to another American economic downturn. And when it started to become clear Wednesday that a deal resolving the impasse was imminent, the development was cheered from Wall Street to the Great Wall of China.
The Chinese government is America’s largest foreign creditor with $1.3 trillion invested in U.S. debt. And at a regular briefing, a foreign ministry spokeswoman (Hua Chunyin) said, "The United States is the biggest economy in the world. For them to handle the issue properly is to their own interest and beneficial to their own development. We welcome their decision."
But China's official news agency (Xinhua News Agency) issued a scathing commentary accusing U.S. leaders of failing to address chronic budget deficits, saying, "Politicians in Washington have done nothing substantial but postponing once again the final bankruptcy of global confidence in the U.S. financial system and the intactness of dollar investment.”
While U.S. government debt is among the most widely held securities in the world, many people are surprised to learn that China is NOT America’s largest creditor -- Uncle Sam himself is.
In fiscal year 2013, which ended right before the shutdown began, nearly 30 percent of U.S. debt – about $4.75 trillion – was owed to another arm of the federal government. The single largest creditors, in fact, are Social Security’s two trust funds, which together hold more than 15 percent of the national debt. Interest payments to all U.S. creditors – JUST INTEREST -- amounted to more than $420 billion.
Currently, the government is paying historically low rates on its debt, somewhere in the neighborhood of 2.4 percent. But anything that erodes confidence in America’s ability to pay its bills in full and on time could prompt creditors to demand higher interest rates and leave the American people even further in the hole.
Standard & Poor's estimates the shutdown drained $24 billion out of the U.S. economy, and the Fitch credit rating agency is reviewing its AAA rating on U.S. government debt for a possible downgrade.
While world leaders, investors -- and taxpayers --welcomed the end of the shutdown Thursday, many were already looking ahead to the next round of a budget battle that could leave the world's largest economy on the brink of default.