Update (1:29 p.m., Aug. 2): 

President Barack Obama signed a last-minute compromise plan to raise the nation’s $14.3 trillion debt ceiling Tuesday afternoon, narrowly averting what could have been an unprecedented default with calamitous economic consequences.

The U.S. Senate passed the plan, which imposes sweeping new spending cuts over the next decade, shortly after noon ET. The bill was approved in a 74-26 vote; 60 votes were required for passage.

---

The U.S. Senate has crossed the 60-vote threshold needed to pass the last-minute compromise plan to raise the nation’s debt ceiling in exchange for spending cuts.

Once the Senate finishes voting, the bill goes to President Barack Obama’s desk to be signed into law – just hours before what would have been an unprecedented default. Voting is still under way, but the bill has received 60 votes, ensuring its passage.

The bill imposes sweeping new spending cuts over the next decade.

The measure was approved by the House of Representatives on Monday by a 269-161 vote, overcoming opposition from unhappy liberal Democrats and tea party Republicans.

If the current $14.3 trillion debt limit is not increased by the end of the day, Americans could face rapidly rising interest rates, a falling dollar and shakier financial markets, among other problems.

Regardless, the federal government could still face a credit rating downgrade.

The agreement – reached Sunday by Obama and congressional leaders from both parties – calls for up to $2.4 trillion in savings over the next decade, raises the debt ceiling through the end of 2012 and establishes a special congressional committee to recommend long-term fiscal reforms.

Emotions ran high during the final debates on Capitol Hill. Numerous Republicans remain worried about cuts in defense spending and the lack of a required balanced-budget amendment to the Constitution. Progressive Democrats are livid over the extent of the deal’s domestic spending cuts, as well as the absence of any immediate tax hikes on high-income Americans.

“On this matter, my conscience is conflicted,” Sen. Dick Durbin, D-Illinois, said Tuesday morning. “If we should default on our debt, terrible things will ensue.”

But if the bill passes, “working families and their children” will be hurt. There will be negative “consequences on innocent people in America,” Durbin said.

“All of this is a down payment on further ways to bring common sense … to the spending of our government,” said Sen. Mark Kirk, R-Illinois. “If we fail, we deliver a free people into the hands of financial bondage.”

Sen. Joe Lieberman, I-Connecticut, praised the deal for starting “a long, hard march back to fiscal responsibility in our country.”

“Nobody seems perfectly satisfied with it, but that’s inevitable,” Lieberman said. “For me, the positive outweighs the negative.”

House Speaker John Boehner, R-Ohio, and other GOP leaders have sold the deal to skeptical rank-and-file Republicans by arguing that it will finally begin the process of reforming spending and taming the growing debt, a key goal of conservatives who fueled the GOP takeover of the House in last year’s midterm elections.

Top Democrats have focused on the fact that the bill preserves benefits from popular entitlement programs such as Medicare and takes the politically problematic debt ceiling issue off the table until 2013.

In the end, Boehner was able to round up the support of most of his House GOP caucus, while the House’s two top Democrats – Pelosi of California and Minority Whip Steny Hoyer of Maryland – voted for the plan along with more than 90 of their caucus members.

One of those supporting the plan was Rep. Gabrielle Giffords, D-Arizona, who cast her first House vote since being shot in the head in an assassination attempt in January. She received an emotional ovation when she entered the chamber.

The final agreement revolves around a two-stage process.

The first stage includes $917 billion in savings, including a roughly $420 billion reduction in the national security budget. The cuts would be accompanied by a $900 billion increase in the debt ceiling.

Because of the pending Tuesday deadline, Obama would have immediate authority to raise the debt ceiling by $400 billion, which will last through September, according to the White House.

The other $500 billion increase in the debt limit would be subject to a congressional vote of disapproval that can be vetoed by Obama.

In the second stage, a special joint committee of Congress would recommend further deficit reduction steps totaling $1.5 trillion or more, with Congress obligated to vote on the panel’s proposals by the end of the year.

The committee would comprise 12 members: Six from each chamber, equally divided between Democrats and Republicans. The panel’s recommendations would be due by November 23 and guaranteed an up-or-down vote without amendments by December 23.

The committee is expected to consider politically sensitive reforms to the tax code and entitlement programs, though Democrats and Republicans disagree on the likelihood of any eventual revenue increases.

If the committee’s recommendations are enacted, Obama would be authorized to increase the debt ceiling by up to $1.5 trillion. If the recommendations are not enacted, Obama can still raise the debt ceiling by $1.2 trillion. At that point, however, a budget “trigger” would kick in, imposing mandatory across-the-board spending cuts matching the size of the debt ceiling increase.

The cuts would be split between defense spending and non-defense programs, an unpopular formula intended to motivate legislators to approve the committee’s recommendations.

“You want to make it hard for (lawmakers) just to walk away and wash their hands,” Gene Sperling, the director of Obama’s National Economic Council, said Sunday. “You want them to say, if nothing happens, there will be a very tough degree of pain that will take place.”

The final debt ceiling increase in the agreement would also be subject to a congressional vote of disapproval that can be vetoed by Obama.

The agreement calls for both houses of Congress to vote on a balanced budget amendment to the Constitution, though it does not make a further increase in the debt limit subject to congressional passage of such an amendment — something tea party conservatives were initially demanding.

Leaders on both sides of the aisle have openly conceded that the deal is far from perfect.

Senate Majority Leader Harry Reid, D-Nevada, emphasized Monday that “no one got what they wanted” and “everyone had to give something up.”

But this “is a great stride forward” that shows “we can succeed not in spite of our divided government but because of it,” he said.

A new CNN/ORC International Poll shows that only 44% of Americans approve of the debt ceiling deal, while 52% disapprove.

According to the August 1 survey, Republicans dislike the fact that the deal raises the debt ceiling through 2013, while Democrats dislike the lack of any tax increases on businesses or higher-income Americans.

Only 17% of Americans believe that their elected officials have behaved like “responsible adults” during the debt ceiling debate, while 77% believe they have acted like “spoiled children.”

“I think all of us need to reflect on how these institutions are conducting themselves, how members are conducting themselves,” Sen. Kent Conrad, D-North Dakota, said Tuesday.

“We need to think about why are we really here. We’re here to solve problems. We’re not here to worry about the next election, and unfortunately there’s too much focus on pure partisan politics and not enough focus on solving problems confronting the country.”