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US dodges debt default again

Senate acts swiftly to allow the government to borrow money to pay its bills

US Senate Minority Leader Mitch McConnell returning to his office after a vote to raise the debt ceiling at the US Capitol in Washington. The Senate’s quick action in the on the debt contrasts with the lengthy showdowns last year and in 2012. — Reuters

The United States avoided a devastating debt default as the Senate passed legislation to allow the government to borrow money to pay its bills — a major win for President Barack Obama after years of fiscal battles with Republicans.

The relatively smooth passage comes as most members of Congress face elections in November. Republicans have been less confrontational after a 16-day partial government shutdown last year sent their poll numbers sliding and chastened the party’s conservative tea party faction.

A debt default could have shaken financial markets and spiked interest rates.

The quick action in the Senate on the debt contrasts with the lengthy showdowns last year and in 2012, when Republicans tried to use the critically necessary measure as leverage to win concessions from Obama.

Obama has been unwilling to negotiate over the debt limit since his re-election in 2012, and Wednesday’s legislation is the third consecutive debt measure passed without White House concessions.

The Senate approved the measure by a near party-line 55-43 vote, with all of the votes of support coming from Obama’s Democratic allies.

The measure is required so that the government can borrow to pay bills like pension benefits, federal salaries and payments to health care programmes for the elderly and the poor.

The legislation would permit Treasury to borrow normally for another 13 months and then reset the government’s borrowing cap, currently set at $17.2 trillion, after that.

Congress has never failed to act to prevent a default on US obligations, which most experts say would scare financial markets.

Wednesday’s vote exposed sharp divisions within the Republican Party. The leader of the tea party wing, potential 2016 presidential candidate Senator Ted Cruz, tried to use a tactic known as the filibuster to prevent the bill from being put to a vote. That forced Republican leaders who opposed the delaying maneuver to join Democrats in casting a procedural vote to override it. Although all Republicans later voted against the legislation itself, the procedural vote could be detrimental to their careers.

Retail sales, jobless claims up

Meanwhile, US retail sales fell unexpectedly in January and the number of Americans filing new claims for unemployment benefits rose last week, in the latest signs of slowing economic growth early in the first quarter.

The Commerce Department said on Thursday retail sales fell 0.4 per cent last month, led by a drop in automobile sales.

Economists polled by Reuters had forecast retail sales unchanged in January.

Sales in December were revised to show a 0.1 per cent fall instead of the previously reported 0.2 per cent rise. The second month of declines in sales likely reflected frigid temperatures across many parts of the country.

“The weakness we saw in retail sales is unfortunately weather-related and we are clearly seeing that the first quarter growth is slower than we anticipated,” said Peter Cardillo, chief market strategist at Rockwell Global Capital in New York.