Editor's Note: The following is reprinted with the permission of the Council on Foreign Relations.
The deal, which will be voted on by the House and the Senate today, would raise the debt limit by $2.4 trillion in two stages, while committing to equal spending cuts over ten years. If approved, the deal will establish a new congressional committee to recommend a long-term deficit reduction (NYT) package by Thanksgiving.
Global investors responded positively to the news, boosting U.S. stocks (Reuters) and selling off safe-haven assets. But many investors still fear that the deal does not go far enough to shield the country from a credit rating downgrade that could see it lose its long-held AAA status. The agreement includes only around $1 trillion (Politico) in spending cuts upfront, far short of the $4 trillion encouraged by Standard and Poor's. While less severe than a default, a credit downgrade would have significant repercussions for the U.S. and global economies.
Regardless of the debate over the debt ceiling, many analysts expect a downgrade in the U.S. debt rating because of doubts about a comprehensive deficit-reduction plan. The fallout could include higher borrowing costs, a weaker dollar, and market turbulence, says this CFR Analysis Brief.
Raising the debt ceiling without a credible deficit-cutting agreement still poses real risks of imminent, damaging market turmoil, says this analysis by the Center for Geoeconomic Studies.
The debt deal would avert a catastrophic government default immediately and probably through the end of 2012. The rest of it is a nearly complete capitulation to the hostage-taking demands of Republican extremists, says this New York Times editorial.
The big picture is that the deal is a victory for the cause of smaller government, arguably the biggest since welfare reform in 1996, says this Wall Street Journal editorial.
MIDDLE EAST: Assad Cracks Down on Hama
Syrian President Bashar al-Assad's security forces attacked the western city of Hama on Sunday, a seat of anti-government opposition (WSJ), killing at least eighty people in a crackdown meant to stifle demonstrations before the start of the Muslim holy month of Ramadan.
A potential civil war in Syria, a broken state in Libya, and Egypt's transition of power loom as chief Mideast challenges for Washington. CFR's Robert Danin reviews the path for U.S. planners.
Israel: Israeli and Lebanese troops exchanged fire (al-Jazeera) along the countries' border near the disputed village of Ghajar, with each side accusing the other of provocation. No casualties were reported.
PACIFIC RIM: Ethnic Violence in China
At least eleven civilians were killed in attacks carried out by Uighurs (al-Jazeera), a Turkic Muslim ethnic minority, in the city of Kashgar in China's eastern Xinjiang province. Beijing claimed the violence was instigated by Pakistani-trained “religious extremists,” prompting a crackdown on religious activities at start of the Muslim holy month of Ramadan.
North Korea: After two days of exploratory talks between North Korea and the United States in New York, North Korea confirmed that it wants to resume six-party talks “without preconditions” (BBC) over ending its nuclear weapons program in exchange for energy and economic aid.
SOUTH AND CENTRAL ASIA: Mullen Warns of Pakistan Border Threat
While visiting U.S. troops in Kabul, Admiral Mike Mullen, the U.S. chairman of the Joint Chiefs of Staff, said Pakistan's tribal border regions with Afghanistan continue to provide shelter to terrorist organizations (IndianExpress), as he faulted Pakistan for failing to eliminate existing al-Qaeda strongholds.
Pakistan's stability is of great consequence to regional and international security. Examine the roots of its challenges, what it means for the region and the world, and explore some plausible futures for the country in this CFR Crisis Guide.
Pakistan: A U.S. drone strike targeting a vehicle in the South Waziristan (Dawn) border region killed at least four suspected militants on Monday.
AFRICA: Nigeria to Negotiate with Islamist Rebels
Nigerian President Goodluck Jonathan will inaugurate a committee to negotiate with the radical Islamist group Boko Haram (Reuters), the faction responsible for near-daily terror attacks and the deaths of more than 250 people since July 2010.
In an article in the Atlantic, CFR's John Campbell and Asch Harwood discuss the challenges facingNigeria's newly elected president, Goodluck Jonathan.
Somalia: A torrential downpour hit Mogadishu destroying the makeshift homes of thousands of famine-stricken (Guardian) Somali refugees. The weather struck as the African Union seeks to stave off al-Shabaab Islamist militants from attacking the refugee camps.
AMERICAS: Mexican Drug Lord Held by Authorities
The leader of the Mexican drug gang La Línea (NYT), José Antonio Acosta Hernández, was arrested by Mexican police Sunday. Hernández, also wanted by the United States for killings connected to a U.S. consulate in northern Mexico last year, confessed to ordering 1,500 killings as head of the drug cartel.
David A. Shirk analyzes the drug war in Mexico and argues that the United States should help Mexico address its pressing crime and corruption problems.
EUROPE: Twenty-Five Dead on Libyan Refugee Boat
Italian coastguards said twenty-five people appeared to have choked to death on a boat carrying nearly three-hundred refugees from Libya to the Italian island of Lampedusa (DeutscheWelle), a destination for thousands of people who have fled conflicts in North Africa in recent months.
Eurozone: Christine Lagarde, the new managing director of the International Monetary Fund, warned eurozone ministers to stop public bickering and “speak with one voice” (FT) as they move forward with a new IMF-EU bailout for debt-laden Greece.
The International Monetary Fund, both criticized and lauded for its efforts to promote financial stability, finds itself again in the forefront of global economic crisis management. This Backgrounder examines the Fund's history and role.