WASHINGTON – The United States was spared the ignominy of a first debt default as Congress passed a bill late on Wednesday extending the nation's borrowing authority and ending a two-week government shutdown.
Pulling America's economy back from the edge of an abyss, the Senate approved the measure that should end the US government shutdown and averts a potentially catastrophic default.
The last-gasp bill, which passed 81-18 with broad bipartisan support, now heads to the House of Representatives, less than four hours before a midnight deadline.
The measure then goes to President Barack Obama for his signature.
Republican and Democratic senators announced a plan that would stave off the most pressing crisis by extending the US Treasury's borrowing authority until February 7.
After several chaotic days running up to Thursday's deadline, the agreement would also re-open shuttered federal agencies, bringing hundreds of thousands of furloughed employees back to work, by funding government through January 15.
Even before the bruising and acrimonious battle was to reach its finish with the House vote, President Obama sought to heal the wounds caused by the showdown.
But he also warned that Washington must stop governing by crisis.
Obama said US leaders needed to "earn back" the trust of the American people in the aftermath of the crisis, in a short statement after the Senate vote. "Once this agreement arrives on my desk, I will sign it immediately," he said. "We'll begin reopening our government immediately, and we can begin to lift this cloud of uncertainty and unease from our businesses and from the American people."
With a bitterly divided Congress locked in stalemate for a month, Senate Majority Leader Harry Reid worked behind closed doors with his Republican rival Senator Mitch McConnell to craft the compromise that had eluded Washington.
"The bipartisan senate rose to the occasion and broke this deadlock," number two Senate Democrat Dick Durbin said.
While the deal was welcomed on Wall Street, with the Dow Jones Industrial Average and the broader S&P 500 index up almost 1.4 per cent, the signs of a close-to-humiliating, last-minute bid to avert possible economic turmoil around the world were plain to see.
"I hope that we're nearing the end of this ordeal, this impasse which never should have happened in the first place," said Senator Susan Collins, a Republican who has led efforts to broker a compromise.
The bill still needs to pass the unpredictable House of Representatives before it reaches Obama's desk.
After the agreement was unveiled, House speaker John Boehner bowed to the inevitable and admitted there were "no reasons for our members to vote no today," while maintaining that Republicans didn't like the terms.
"We fought the good fight, we did everything we could. They just kept saying no, no, no," Boehner said of lawmakers in Obama's Democratic Party.
"Our drive to stop the train wreck that is the president's health care law will continue," Boehner added, apparently seeking to placate hard-right Tea Party-backed Republicans who have opposed so-called "Obamacare.
The legislation would allow government to borrow beyond its current $16.7 trillion debt ceiling to meet its obligations.
A draft text showed that workers who were asked to stay at home during the shutdown would receive back pay at standard rates.
The US economy has faced unchartered waters during the more than two-week crisis, with the Treasury saying that from Thursday it would no longer be able to borrow more money and avert a devastating debt default.
In a sign of the confusion, the White House insisted that the final deadline was midnight Thursday – 24 hours later than expected by many as the end point for raising the debt limit.
Ratings firm Standard & Poor's, meanwhile, said the government shutdown had already taken $24 billion out of the economy and will cut growth in the fourth quarter significantly.
House conservatives have thus far thwarted votes on the debt ceiling and on passing a budget, demanding concessions from Obama.
Democrats have refused to allow Republicans to hold those issues to "ransom" with attempts to slash spending or dismantle the president's landmark health insurance reform.
But the Senate deal includes a mechanism that forces lawmakers into entering long-term budget negotiations, with recommendations due by December 13. The stand-off forced the US federal government into a partial shutdown from October 1.
The Fitch ratings agency on Tuesday nderlined the seriousness of the situation by putting the US government's AAA credit rating on a downgrade warning. Major world powers have been left looking on in dismay, unable to do anything to protect their own economic interests, with many deeply invested in US Treasuries – hitherto seen as a safe haven.
China and Japan, which between them hold $2.4 trillion in US Treasuries, have expressed alarm and annoyance at the bitter political partisanship that has caused the weeks-long crisis. AFP