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Senate set to agree deficit deal

The US Senate is on Tuesday expected to pass a package that will prevent the country defaulting on its massive debt by slashing 2.1 trillion dollars (1.5 trillion euros) from public spending over 10 years.

Reuters
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The bill, which was passed by the Republican-controlled House of Representatives on Monday, goes to the Democrat-controlled Senate at noon local time (1600 GMT) and, if passed, would than have to be signed by President Barack Obama shortly afterwards.

It will raise the 14.3-trillion-dollar (10-trillion-euro) debt ceiling and set up a congressional committee to recommend a debt-reduction package by late November.

But the package may not prevent a ratings cut, which would push up US borrowing costs. Two major ratings agencies have said that cuts of four-trillion-dollar (three-trillion-euro) would be needed to keep the country’s AAA rating.

Hard-right Republicans in the Tea Party caucus demanded more cuts in the House debate but had already succeeded in quashing all proposals for tax rises made in an earlier four-trillion-dollar package agreed by Republican House leader John Boehner and Obama but thrown out by representatives.

State media in China, which is the largest holder of US debt, warned that the agreement has not resolved the US’s underlying problems and warned that they mean danger for the world economy.

"Although the United States has basically avoided default, its sovereign debt problems remain unresolved," said a comment piece in the People's Daily, a mouthpiece of the ruling Communist Party.

"They are just deferred and there is a tendency for them to grow. This is casting a shadow over the recovery of the US economy and hiding even bigger risks and troubles for the global economy."
 

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