Video: Obama: Deal reached on debt limit

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updated 7/31/2011 11:32:25 PM ET 2011-08-01T03:32:25

Ending a perilous stalemate, President Barack Obama and congressional leaders announced a historic agreement Sunday night on emergency legislation to avert the nation's first-ever financial default.

The dramatic resolution lifted a cloud that had threatened the still-fragile economic recovery at home — and it instantly powered a rise in financial markets overseas.

The agreement would slice at least $2.2 trillion from federal spending over a decade, a steep price for many Democrats, too little for many Republicans.

Story: House passes bill to prevent US default
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The Treasury's authority to borrow would be extended beyond the 2012 elections, a key objective for Obama, though the president had to give up his insistence on raising taxes on wealthy Americans to reduce deficits.

The deal, with scant time remaining before Tuesday's debt-limit deadline for paying government bills, "will allow us to avoid default and end the crisis that Washington imposed on the rest of America," the president said in an announcement at the White House.

Default "would have had a devastating effect on our economy," he said.

House approval in question
House Speaker John Boehner telephoned Obama at mid-evening to say the agreement had been struck, then immediately began pitching the deal to his fractious rank and file.

"It isn't the greatest deal in the world, but it shows how much we've changed the terms of the debate in this town," he said on a conference call, according to GOP officials. He added the agreement was "all spending cuts. The White House bid to raise taxes has been shut down."

The House Democratic leader, Rep. Nancy Pelosi, was noncommittal. "I look forward to reviewing the legislation with my caucus to see what level of support we can provide," she said in a written statement.

Story: Economists warn cuts to federal spending ill-timed

Many economists have expressed concerns that the spending cuts could threaten an already feeble economic recovery. The first half of 2011 marked the worst six-month economic performance since the Great Recession officially ended in June 2009.

No votes were scheduled in either house of Congress before Monday, to give rank and file lawmakers time to review the package. Senate approval seems virtually certain; the House could prove more difficult.

Without legislation in place by Tuesday, the Treasury would not be able to pay all its bills, raising the threat of a default that administration officials say could inflict catastrophic damage on the economy.

If approved, though, a compromise would presumably preserve America's sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.

Even word of an impending deal earlier in the day by Senate Republican Leader Mitch McConnell of Kentucky sent U.S. stock futures upward. And before Obama had finished speaking, Japan's benchmark Nikkei index, opening Monday morning — at 8 p.m. Sunday on America's East Coast — was up 1.7 percent in early trading.

Story: Debt questions will dog stock market this week

Not that the deal would end the political maneuvering. While eliminating the threat of default, it creates a remarkably short timetable for Congress to debate a huge and politically bruising deficit-reduction plan. The plan would require a committee of lawmakers to come up with $1.5 trillion more in deficit cuts from benefit programs or tax reform before Thanksgiving. Congress must vote on them by Christmas — or trigger across-the-board cuts that would hit the Pentagon and domestic programs.

Pending final passage, the agreement marked a dramatic reach across party lines that played out over six months and several rounds of negotiating, interspersed by periods of intense partisanship.

"Sometimes it seems our two sides disagree on almost everything," Senate Majority Leader Harry Reid said in floor remarks.

"But in the end, reasonable people were able to agree on this: The United States could not take the chance of defaulting on our debt, risking a United States financial collapse and a world-wide depression."

Vice President Joe Biden, who played an important part in this weekend's negotiations, agreed. He tweeted, "Compromise makes a comeback."

Not everyone felt that way.

"Someone has to say no. I will," said Rep. Michele Bachmann, R-Minn., a contender for the 2012 Republican presidential nomination.

Slideshow: Taking the Hill: Inside Congress (on this page)

Across the weeks, Boehner emerged as Obama's principal Republican antagonist in a contentious new era of divided government, yet struggled to corral his own rank and file at times.

At the end, though, McConnell and Biden, who looked on as Obama announced the deal, provided a negotiating channel to get the deal completed, overcoming a last-minute standoff over the impact of spending cuts on the Pentagon budget.

The plan calls for spending cuts and increased borrowing authority for the Treasury in two stages.

In the first, passage of the legislation would trigger more than $900 billion in spending cuts over a decade as well as a $900 billion increase in the government's borrowing authority.

Spending cuts in two stages
The spending cuts would come from hundreds of federal programs across the face of government — accounts that Obama said would be left with the lowest levels of spending as a percentage of the overall economy in more than a half-century.

The increased borrowing authority includes $400 billion that would take effect immediately, and $500 billion that would be permitted after Congress had a chance to block it.

In the second stage, a newly created joint committee of Congress would be charged with recommending $1.5 trillion in deficit reductions by the end of November that would be put to a vote in Congress by year's end. The cuts could come from benefit programs such as Medicare, Social Security and Medicaid as well as from an overhaul of the tax code.

The committee proposals could trigger a debt limit increase of as much as $1.5 trillion, if approved by Congress. But if they do not materialize, automatic spending cuts would be applied across government to trim spending by $1.2 trillion.

Social Security, Medicaid and veterans' benefits would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.

The deal marked a classic compromise, a triumph of divided government that would let both Obama and Republicans claim they had achieved their objectives.

As the president demanded, the deal would allow the debt limit to rise by enough to tide the Treasury over until after the 2012 elections.

But Obama's request to extend the current payroll tax holiday beyond the end of 2011 would not be included, nor his call for extended unemployment benefits for victims of the recession.

Republicans would win spending cuts of slightly more than the increase in the debt limit, as they have demanded. Additionally, tax increases would be off limits unless recommended by the bipartisan committee, which is expected to include six Republicans and six Democrats. The conservative campaign to force Congress to approve a balanced-budget amendment to the Constitution would be jettisoned.

Congressional Democrats have long insisted that Medicare and Social Security benefits not be cut, a victory for them in the proposal under discussion. Yet they would have to absorb even deeper cuts in hundreds of federal programs than were included in legislation they had advanced in the final days before an agreement was reached.

_____

Associated Press writers Ben Feller, Jim Abrams, Laurie Kellman and Andrew Taylor contributed to this story.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Photos: Taking the Hill: Inside Congress

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  1. With more than 30,000 employees and 535 legislators between the House and Senate, the U.S. Capitol complex is like a city unto itself. Months ago, NBC News received permission to flood the Hill with cameras for a day-in-the-life documentary shoot. What no one knew at the time is that the Capitol would be in the midst of grinding talks over the national debt while we were there. This slideshow consists of photos taken while dozens of NBC TV cameras roamed the buildings and grounds this past Wednesday, July 27. The resulting documentary, "Taking the Hill: Inside Congress," airs Sunday, July 31 at 7 p.m. ET. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  2. As the day begins, Brian Williams, anchor of NBC's "Nightly News" and host of "Inside Congress," waits for House Speaker John Boehner, R-Ohio, to emerge from the Memorial Doors after his arrival at the Capitol. Speaker Boehner was under immense pressure to deliver enough Republican votes to pass his debt-ceiling plan and it showed in his demeanor. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  3. Initially, it was thought that Boehner's plan would come up for a vote on the House floor the day we were there. But it was held back after questions emerged over how much money it would actually save. The next day, it was tabled again, reportedly over fears it didn't have enough support among Boehner's Republican colleagues. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  4. For Boehner and his House and Senate colleagues, the Capitol building is where much of the nation's business gets done. Few who visit fail to be impressed by the building's giant dome, which looms over Washington, D.C. The building's initial design was chosen through a competition with a $500 prize. William Thorton, a physician, submitted the winning drawing and construction began in 1793 when President George Washington laid the cornerstone. It has been a work in progress ever since. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  5. In the Rotunda, , which sits under the dome, a statue of Abraham Lincoln appears to be pointing at Capitol police officers. The Rotunda, which was designed to emulate the Roman Pantheon, boasts statues and busts and large-scale works of art. Members of the Capitol police force are never far from view in and around the Capitol, with more than 1,500 of them protecting congressional buildings and parks. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  6. The circle on the Rotunda floor is the physical center-point of the Capitol, a midpoint between the House and Senate wings. The Rotunda is considered a neutral zone of sorts, the Switzerland of the building. To pull off NBC's day-in-the-life of Congress documentary, more than 80 crew members descended on the Capitol, including producers (like Subrata De, seen with Williams), camera operators and lighting and sound technicians. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  7. The Capitol Dome, which sits above the Rotunda, was designed by Charles Bulfinch in 1824, but it was soon considered too small for the rest of the building and a fire hazard. Thomas Walter redesigned the dome in the 1850s, causing a frenzy among congressmen delighted by Walter's more grandiose vision. Today, the area inside the dome measures 180 feet top to bottom. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  8. Williams waits for Sen. Harry Reid, D-Nevada, to exit the Senate floor. By his side is Ken Strickland, deputy bureau chief for NBC News in Washington, D.C., and former Senate producer for NBC. Strickland is explaining that cameras are never allowed to shoot the doors of the Senate. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  9. Later, in Reid's office, the senator shows off a painting of Las Vegas as it used to be: a cowboy town. When asked about Rep. Boehner and the debt negotiations, Sen. Reid said the House Speaker had "painted himself into this corner that makes our job over here much more difficult." (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  10. You never know who you'll come across when walking around the congressional complex. Here, Max Page, the young actor who played mini-Darth Vader in a Super Bowl car commercial, offers his autograph to Williams. Page has a heart defect and was on Capitol Hill to lobby against cuts to health care funding. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  11. Rep. Kristi Noem, a Republican of South Dakota, is a first-year member and a rising star in the Tea Party. Interviewed in the Longworth House Office Building cafeteria by Williams, Noem is considered by some to be the "next Sarah Palin." In 1997, she received the South Dakota Oustanding Young Farmer award. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  12. Just above Speaker Boehner's desk sits a motivational plaque that reads, "It CAN be done." As the NBC team neared Boehner's office, the smell of smoke was unmistakable, a rare occurrence in the nation's increasingly health-conscious capital. Boehner's smoking habit is well-known but he's rarely caught on camera with a cigarette in his mouth. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  13. With the debt negotiations roiling his caucus, Boehner told Williams that "no one ever said it would be pretty." When asked if it was fair to say he had a bit of a rebellion on his hands, Boehner replied that this was nothing unusual. "I've got a little rebellion on my hands every day. It comes with the terrority," he said. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  14. The view from the Speaker's Balcony is one of the best in Washington, D.C. In the distance, the Washington Monument rises above the National Mall. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  15. An avid golfer, Boehner has a bowl of tees in his office with "Speaker John Boehner" stamped on them. A recent round of golf with President Obama failed to produce an agreement that could pass the House. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  16. The Capitol complex is connected by underground tunnels and subways. Here, Williams is escorted from a House office building to the Capitol by a police officer. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  17. Minority Leader Nancy Pelosi, D-Calif., greets tourists in Statuary Hall. The hall is comprised of statues donated by individual states to honor prominent people. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  18. Pelosi has gone from being minority leader to speaker of the House and now back to minority leader again, as the House of Representatives changed hands between Republicans and Democrats. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  19. Leaders in Congress, such as the speaker of the House and the majority leader, have offices in the Capitol and also in the nearby congressional office buildings. When power shifts between the parties, one of the most visible signs of the switch is when the Capitol offices change hands. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  20. Rep. Eric Cantor, R-Va., assumed the role of majority leader this year after Republicans knocked Democrats out of power in the 2010 elections. His breed of economic conservatism is ascendant in the Republican Party. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  21. A close-up of the "Cantor Rule:" "Are my efforts addressing job creation and the economy? Are they reducing spending? Are they shrinking the size of the federal government while protecting and expanding liberty? If not, why am I doing it... Why are WE doing it?" (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  22. Staffers line the halls outside Cantor's office. With office space in short supply, desks are squeezed wherever there is room. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  23. Certain elevators on both the House and Senate side are reserved for members of Congress only or people they invite. The purpose is to allow easy travel to the floor for votes. In recent years, some senators have complained that too many staffers, lobbyists and even tourists have been riding the Senate-only elevators. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  24. Rep. Stenny Hoyer, D-Md., is the house minority whip; the person responsible for ensuring discipline among his party's legislators. The position requires deep political skills and countless hours of arm-twisting, cajoling and counting votes. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  25. Hoyer is a graduate of the University of Maryland, College Park, whose mascot is the terrapin, a species of turtle. He displays a number of turtles in his office and says these are only a portion of his total collection. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  26. Sen. Mitch McConnell of Kentucky is the Republican minority leader in the Senate, an institution whose filibusters and holds and other arcane procedures often slow the legislative process. During the interview, Williams asked McConnell, a fiscal conservative, why "rich folks" shouldn't pay more in taxes to help reduce the debt. "They do. They pay an extraordinary amount more," McConnell said. "In fact, about half of Americans don't pay any income taxes at all." (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  27. Members and staffers receive an economic briefing from Jared Bernstein, who served as the chief economist for Vice President Joe Biden until earlier this year. Experts for both Republicans and Democrats can be seen all over the Hill, testifying in hearings as well as giving closed- and open-door briefings. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  28. The “three amigos” Sens. Lindsey Graham, Joe Lieberman and John McCain maintain what is becoming an endangered species in Congress: a deep friendship that crosses partisan lines. These kinds of relationships are crucial during tense negotiations like the debt talks. (Antoine Sanfuentes / NBC News) Back to slideshow navigation
  29. The Senate subway speeds senators and staffers to and from the Capitol building and the Senate office buildings. For reporters, the subway platforms can be great places to buttonhole legislators who would rather avoid questions. For legislators, they provide quick access to the Capitol for votes and a convenient way to leave at the end of a long day. () Back to slideshow navigation
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