President Joe Biden signed a bill into law on Thursday that raises the US debt limit by $2.5 trillion, averting a potential default that could have triggered a global economic crisis.
The bill passed both chambers of Congress with bipartisan support after weeks of tense negotiations between Democrats and Republicans.
The new debt ceiling will allow the US Treasury to continue borrowing until early December 2022, well past the midterm elections.
Biden said the bill was a “bipartisan compromise” that showed that “democracy can still work”.
He also urged Congress to pass his social spending and infrastructure bills, which he said would “create millions of jobs, grow the economy, lower costs for working families and make our nation more competitive”.
What is the debt ceiling and why does it matter?
The debt ceiling is a legal limit on how much the US government can borrow to pay its bills, such as interest on its debt, Social Security benefits, military salaries and Medicare payments.
It does not authorize new spending, but rather allows the government to pay for what it has already spent.
Congress has to periodically raise the debt ceiling or suspend it, otherwise the Treasury runs out of money and risks defaulting on its obligations.
A default would have severe consequences for the US and global economy, as it could undermine confidence in the US dollar and Treasury bonds, which are considered the safest and most liquid assets in the world.
A default could also trigger higher interest rates, lower credit ratings, reduced government services and a possible recession.