White House, Republicans reach deal on debt limit

Deadline extended

Earlier there had been indications that negotiators were closing in on a deal. On Friday, US Treasury Secretary Janet Yellen extended the deadline for raising the federal debt limit, saying the government would default on its obligations if Congress did not increase the country's $31.4 trillion debt ceiling by June 5. Yellen had previously said a default could happen as early as June 1.

The June 1 deadline meant that on June 2 the government would be unable to pay about $25 billion in Social Security payments for the oldest recipients of payments, those 88 years old.

It was widely reported that the deal would suspend the debt limit until January 2025, allowing next year's presidential election not to be troubled by the debt ceiling issue.

However, it was unclear whether the agreement would win enough support in Congress.

The debt ceiling has been modified 102 times since World War II, according to the US Congressional Research Service.

The long standoff on raising the debt ceiling has spooked financial markets, weighing on stocks and forcing the US to pay record-high interest rates in some bond sales. A default would take a far heavier toll, economists say, probably pushing the country into recession, shaking the world economy, and leading to a rise in unemployment.

Bankers were pinning their hopes on the debt ceiling impasse being resolved without significant dislocation to markets, but warned that this is a risky strategy.

"Credit markets are pricing in a resolution in Washington, so if that is not delivered by early next week we are likely to see some volatility," Maureen O'Connor, global head of high-grade debt syndicate at Wells Fargo, told Reuters.

"That said, many investment-grade companies preempted this risk, which is why we saw such an active May calendar."

An estimated 67 million people receive Social Security benefits each month. At $1 trillion a year, the entitlement program accounts for 16 percent of the country's annual spending, making it the largest federal benefits program. Almost two-thirds of beneficiaries rely on Social Security for half of their income, and for 40 percent of recipients, the payments constitute at least 90 percent of their income, according to the National Committee to Preserve Social Security and Medicare. The average benefit for retired workers is $1,827 a month this year.

"That check keeps me going," said a woman aged 80 who lives in New Jersey and wished to remain anonymous. She uses her Social Security payment to pay rent and "to make sure the refrigerator is full", she said.

All the 60 or so people in the apartment building in which she lives are older than 70 and depend on their monthly Social Security payment. "We count on it being put in our checking account or in the mailbox, and on time. But maybe not now. The shelves in my refrigerator would have little on them without it."

In a letter to Congress, Yellen said Social Security and Medicare recipients and veterans will be paid more than $130 billion of scheduled payments in the first two days of June.

However, she also said that during the week of June 5 Treasury is due to make an estimated $92 billion of payments and transfers, including quarterly adjustments of about $36 billion, toward Social Security and Medicare trust funds, but she wrote "our projected resources would be inadequate to satisfy all of these obligations".

Various media reports said the spending deal under discussion made progress on a two-year agreement to cap spending and raise the borrowing limit, extending it past next year's elections, and would include increases for the military and veterans.