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US senators neared agreement in the small hours of Thursday to stave off a catastrophic credit default after Democrats said they were close to accepting an offer from the Republicans to raise the debt limit for two months.
Mitch McConnell, who leads the Republican opposition in the upper chamber of Congress, floated the truce as his party was set to vote against Democratic plans to hike the nation's borrowing cap until December 2022 -- prompting hours of negotiations late into Wednesday night.
"We're making good progress. We're not there yet, but (we) hope we can come to agreement tomorrow morning," Schumer said after around 10 hours of talks.
Republicans have pledged not to block the revised, short-term fix, allowing Democrats to "use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels to December," according to McConnell's offer.
The deal would represent the first breakthrough in a partisan staring match that risked leaving the United States unable to service its debt after the estimated deadline of October 18, which would have shattered the US economy and led to a global recession.
McConnell has been insisting since July that Democrats suspend the debt limit with no Republican help, through a laborious and partisan process known as "budget reconciliation."
But he was reportedly spooked by Democratic calls to solve the issue via the "nuclear option" of weakening the filibuster — a mechanism of US legislation requiring most bills to get 60 votes to pass.
- Kicking the can -
The temporary fix -- which should get a vote on Thursday -- would buy the Democrats who control the White House and both chambers of Congress breathing space to pass a longer term debt limit extension, although they are still refusing to pursue reconciliation.
"McConnell caved," Senator Elizabeth Warren told reporters as news of the ceasefire emerged.
"And now we're going to spend our time doing child care, health care and fighting climate change."
McConnell's olive branch came after President Joe Biden, Treasury Secretary Janet Yellen and a string of heavyweight CEOs lined up at a White House roundtable Wednesday to warn of the "catastrophic" damage a default would do.
But the White House response to the offer was initially lukewarm, with Biden's spokeswoman Jen Psaki calling on Senate Republicans not to "kick the can down the road" when an immediate, long-term solution was available.
The debt ceiling is a legal limit on ever-ballooning US borrowing. As the maximum is reached over the years, Congress has routinely and usually without much controversy voted to extend the ceiling.
This time, Republicans have taken a stand, saying they will not vote for more debt in protest at Biden's plans for trillions of dollars in additional spending on infrastructure and the social safety net.
- Global fallout -
Democrats say the Republicans are merely trying to derail Biden's domestic agenda and cause chaos, which they would then blame on him ahead of next year's congressional elections.
Biden called the debt ceiling a "meteor headed to crash into our economy," while Citi Bank CEO Jane Fraser said Congress was "playing with fire."
US Treasury debt is considered the world's benchmark safe asset and its interest rates are the basis for the pricing of financial products and transactions across the planet.
Even the threat of a default can spook financial markets and damage the economy. A first-ever default would likely be felt around the globe.
"As a result, tens of millions of people would quickly, even overnight in some cases, face the prospect of losing the regular Federal payments that help them to make ends meet," the White House's Council of Economic Advisers tweeted.
The government's ability to provide for national defense, the Covid-19 pandemic response and day-to-day services would also likely be severely impeded, the council warned.
As Biden sought to stress in his televised roundtable, social security payments would take an immediate hit, impacting tens of millions of ordinary people, including the country's 50 million elderly.