Obama announces end to debt impasse

The impasse over the US debt and deficit is over after a late-night deal in Washington DC but it will mean many more months more of stormy debates over taxes and spending.

President Barack Obama and congressional leaders agreed late on Sunday night (local time) to raise the government's debt ceiling by about $US2.4 trillion, while cutting spending and avoiding a government default.

The ceiling will rise in two stages, and provide initially for $US917 billion in spending cuts over 10 years. A special committee of lawmakers will be charged with finding another $US1.5 trillion in deficit reduction, which could come through a tax overhaul and changes to safety-net programmes.

But if the committee doesn't find at least $US1.2 trillion in savings, or Congress doesn't adopt its proposals, a pre-set array of spending cuts will kick in, including cuts in military spending and Medicare payments to healthcare providers.

The committee will not necessarily tackle a tax overhaul. But President Obama is threatening to veto any extension of the Bush-era tax cuts unless the Congress acts on an overhaul of the US tax code.

So as one uncertainty is lifted from the economy with the increase in the debt ceiling, others will be prolonged.

With the framework of the deal now agreed, the rank and file members of the House and Senate must vote on legislation to put it into effect.

That means Monday will be another bumpy ride, especially in the Republican-led House, given that Speaker John Boehner was forced to withdraw and rewrite a plan that he had crafted and urged them to support. After he toughened the language in the bill, the House narrowly approved it. .

The Democratic-controlled Senate is likely to approve any deal inked by party leaders. But Majority Leader Harry Reid could need Republican votes to overcome any attempt by opponents of the agreement to block action with a filibuster.

The New Zealand dollar surged higher still against the greenback on the news. At 1.15pm the kiwi traded at 88.34USc, up from 86.61c on Friday.