One day after a climactic vote in the House, the Senate easily approved the measure, 74 to 26, with significant majorities of both parties supporting it. President Obama promptly signed the bill and submitted a formal request to Congress to lift the $14.3 trillion debt ceiling, instantly giving Treasury $400 billion in additional borrowing power.
With the immediate crisis averted, Obama and congressional leaders quickly turned their attention to the next front in the war over the federal budget: a new legislative committee that will have the job of developing a broader plan to control the government’s debt.
The bipartisan panel, to be named this month, is likely to confront the same ideological divide that caused an almost crippling impasse in the debt-limit debate. Republican leaders are warning that they will not include anyone on the panel who is willing to raise taxes, prompting Democrats to threaten a hard line against cuts to Social Security and Medicare benefits.
Foreign investors and economic analysts see further action as crucial to restoring the United States’ financial reputation. On Tuesday, critics in China and elsewhere warned that the initial debt-reduction package, which would cut about $1 trillion from agency budgets over the next decade, is too modest. And they complained that the last-minute agreement will not tackle the dangers that national health and retirement programs pose to the government’s long-term fiscal health.
While passage of the debt deal was intended to spare the American economy from the effects of a credit default, stock markets did not rally on news of the deal, but instead fell. As Ariana Eunjung Cha and Cezary Podkul explained:
U.S. stocks plunged early Wednesday, a day after suffering their worst daily decline in nearly a year, as investors grappled with signs that the economic situation in the United States and Europe might be deteriorating.
In volatile morning trading, losses to the Dow Jones industrial average, S&P 500 and the Nasdaq indexes fluctuated between between negative 0.5 percent and negative 1.5 percent. The last time the Dow — which has lost nearly 8 percent in the past nine sessions — had such a sustained losing streak was in February 1978. Energy, materials and consumer companies were among those leading the sell-off.
One of the big questions this week is the monthly U.S. jobs report, due to be released Friday. The Labor Department is expected to report that the labor market added 57,000 jobs in July, holding the unemployment rate steady at 9.2 percent. That would be an improvement from June when the labor market essentially stalled.
Two private-sector reports out Wednesday morning offered conflicting views of the jobs market.
Payroll firm ADP estimated that 114,000 jobs were added to private payrolls, which was slightly better than the 100,000 forecast by economists. But a separate report from Challenger, Gray & Christmas found that the number of planned layoffs at U.S. companies had jumped 60 percent in July to 66,414, the highest in 16 months.
Democrats and Republicans managed to come together to vote through the extension after weeks of negotiations, but analysts agree the real battle lines were being drawn for 2012, when President Obama will seek reelection. As Karen Tumulty and Perry Bacon Jr. reported:
To much of America, it may appear that the battle to lift the debt ceiling simply proved that Washington is broken. But as messy and ugly as it was, it also has been a clarifying moment — one that could define the terms of engagement of the 2012 election and shape the battle as one of two vastly different governing philosophies.
Whoever the Republican presidential nominee turns out to be, it now looks likely that President Obama’s battle for reelection will be fought around big issues. Chief among them: the size and role of government, and the values that will set priorities for a diminished pool of resources in austere times.
“This had nothing to do with the debt ceiling,” said Mickey Edwards, a former Republican congressman who runs a political leadership program for elected officials at the Aspen Institute. “This was about the 2012 election, and the lines were drawn about as clearly as possible on both sides.”
Obama strategist David Axelrod agreed: “This has helped crystallize the debate. There is no doubt there will be a very distinct choice.”
If so, that will be a stark difference from recent presidential elections, where candidates sanded the edges off their partisan differences and positioned themselves above the partisan and ideological fray. The rhetoric was gauzy and vague: Obama was the agent of hope; George W. Bush, a uniter, not a divider; Bill Clinton, the avatar of a third way.
In 2012, the contrast between the two parties seems certain to be drawn in sharp relief.
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