"The leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default," President Obama announced Sunday night.

The long-awaited and momentous agreement would cut $1 trillion from a 10-year budget and raise the debt ceiling to beyond the 2012 elections.

Next comes another round of discussion on deficit reduction in which a bipartisan "super committee" of 12 senators and congress members will design a law to reduce deficits by a minimum of $1.5 trillion over the decade, which would include tax and entitlement reform.

U.S. President Barack Obama
President Barack Obama talks about the debt ceiling crisis in the briefing room at the White House in Washington July 31, 2011. Photo: REUTERS

If Congress fails to pass the bill, "triggers" or automatic spending cuts will go into effect.

These "triggers" are what the Republicans and Democrats are squabbling about. For example, Democrats don't want to cut Medicare spending, while Republicans don't like the possibility of military cuts. Republicans also want to keep taxes low and reduce entitlements, but Democrats want to protect entitlements and raise taxes.

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Congress will vote on the "super-committee" bill late fall of next year.