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Obama on debt crisis: We’re not done yet

WARNING: Obama

BARACK OBAMA says he has reached an agreement with Republican and Democratic congressional leaders aimed at ending the US debt crisis.

The deal was broken after both parties were locked in a standoff, amid fears that without an agreement reached by the August 2 deadline, the U.S. and world economy would be forced into default.

Addressing the nation from the White House, the President cautiously warned: "We are not done yet."

The deal will raise the country's debt ceiling by about $2.4tn, but it sparked an immediate backlash from the left of the Democratic party because it also includes about $2.5tn in spending cuts, much of which is almost certain to come from welfare benefits.

"This compromise does make a serious down payment on the deficit reduction we need and gives each party a strong incentive to get a balanced plan done before the end of the year,"

"Most importantly, it will allow us to avoid default and end the crisis Washington imposed on the rest of America," Obama said on Sunday night (July 31).

The deal is mainly a victory for Republicans, whose mission has been to cut the huge federal spending budget and undermine Barack Obama in his bid for re-election next year.

The crisis has already hurt Obama, with a poll last week showing his approval ratings having dropped from 45 percent to 40 percent.

Following Sunday's (July 31) meeting, congressional leaders confirmed they would present the deal to their party members today and were confident that both houses would approve the compromise before Tuesday night, when the nation's $14.3 trillion debt limit must be increased.

The White House hinted that the deadline could be extended for a few days to allow Congress to get legislation through.

THE DETAILS:

* Spending cuts of $900 billion over 10 years on areas such as primarily education, housing and transportation programs while the Defence sector would see a $350 billion cut.

* No immediate tax increase.

* The creation of a new 12-member, bipartisan legislative committee in charge of advising on spending cuts, worth $1.5 trillion. Should the committee fail to come up with the appropriate cuts, automatic spending cuts will be implemented on Jan. 1, 2013. Half of those cuts will affect the Defence sectors, and half will come from non-Defence areas.

* The plan however states that Social Security, Medicaid, unemployment insurance and civilian and military retirement would not be exempt from cuts.

* The debt limit would be increase according to a three-phase plan.

* A $400 billion increase would go into effect immediately, followed by a $500 billion increase that would take effect this fall. Finally, that last increase would be $1.5 trillion and is expected to be enough for the government to get through 2012.

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