The prospect of financial Armageddon appears to have been averted. Congress seems to have agreed to raise the legal US debt ceiling by $2.4 trillion, meaning that America will not have to default on its borrowings.
So the main prize, as far as President Barack Obama is concerned, has been secured. But at what cost? The answer is $2.4 trillion in cuts to state spending over the next decade. The President has been widely criticised for failing to get commitments from the Republicans for tax rises for the wealthy. The best that he was able to extract was a promise of tax "reform".
But this argument is not over. Hard-right Tea Party activists – who have driven this crisis through their pressure on Republican members of Congress – are very keen on spending cuts in the abstract. But in practice, many of them are also as keen on spending programmes such as state pensions and free old-age healthcare as other Americans. One slogan heard at Tea Party rallies has been "keep your government hands off my Medicare". There appears to be an ignorance in these circles that Medicare is a government programme.
Setting a deficit reduction target is one thing. Agreement on how to go about hitting it is something else entirely. Under this deal, a bipartisan congressional committee has been tasked with recommending deficit reduction proposals by November. That will be put to another vote in Congress. When the implications of this deal become clear – and people across the political spectrum realise how it will affect their lives – the political dynamics could well change. Also, the debt ceiling will probably have to be lifted again in 2013. America's growth figures for the second quarter are abysmal. The figures for the first quarter have just been revised down. There is almost no chance that the US is going to be able grow its way out of this fiscal/political bind.
Armageddon has been averted. But as long as the US retains this nonsensical legal cap on its borrowing – and as long as a generation of Republican politicians feel entitled to hold a gun to the head of the credit of America to secure their political ends – disaster will never be far away.