Obama signs emergency debt bill into law

U.S. President Barack Obama signed into law a last-minute bill which will allow the government to borrow more money just hours before the national debt was to reach its ceiling.

The measure, which prevented the country’s first-ever default, passed the Senate by a vote of 74-26 Tuesday after its approval in the House Monday evening.

Though its passage was expected, the legislation came after a long battle between tea party-backed Republicans and Obama, with Speaker John Boehner in the middle.

“Congress has now approved a compromise to reduce the deficit and avert a default that would have devastated our economy,” Obama said in a television address Tuesday afternoon.

“It was a long and contentious debate, and I want to thank the American people for keeping up the pressure on their elected officials to put politics aside and work together.”

Obama said the compromise will require both parties to work together on a larger plan to cut the deficit, and that a balanced approach will be needed since “you can’t close the deficit with just spending cuts.”

Everything will be on the table, he said, including adjustments to Medicare and reforming the U.S. tax code to ensure the wealthiest and biggest corporations pay their fair share.

“We can’t balance the budget on the backs of the very people who have borne the biggest brunt of this recession,” he said.

Aside from a $900 billion US increase in the $14.3-trillion borrowing cap, the proposed law guarantees more than $2 trillion in budget cuts in the coming decade.

It also creates a bipartisan committee to prepare draft legislation to be voted on later this year outlining $1.5 trillion more in spending cuts and a further raising of the borrowing cap.

Much of the bill was on Boehner’s terms, including a demand that any increase in the borrowing cap be matched by cuts. But it also meets conditions made by Obama, including debt increases to keep the government funded into 2013 and curbs on the Pentagon budget.

Following the Senate vote, the Dow Jones industrial average fell for an eighth straight day in early afternoon trading. Despite the good news, investors fled North American markets on concern that the U.S. economy was still weak. The Dow closed down 265.87 points to 11,866.62.

In Toronto, the S&P/TSX composite index fell 193.31 points to 12,752.32.

Moody’s Investors Service said later Tuesday the United States would retain its triple-A bond rating. But the agency assigned a negative outlook to the rating to show that there is still be a risk of a downgrade if the government’s fiscal discipline weakens.

With files from The Associated Press and The Canadian Press