What you need to know about the debt ceiling as the deadline approaches (2023)

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People walk past the doors of the New York Stock Exchange on March 22nd. Washington's risky move to raise the US debt ceiling has worried some financial markets.Peter Morgan/AP Hide title

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Peter Morgan/AP

People walk past the doors of the New York Stock Exchange on March 22nd. Washington's risky move to raise the US debt ceiling has worried some financial markets.

Peter Morgan/AP

There is a risk that the federal government will not be able to repay the country's debt. It's up to Congress to vote on raising the country's debt limit, known as the debt ceiling. But House Speaker Kevin McCarthy and President Biden have stalled on Republican calls for the debt ceiling to be tied to spending caps and other policy demands.

Treasury Secretary Janet Yellen warned the country could run out of lending powers by June 1, leaving negotiators little time to reach an agreement.

Biden met recentlyDiscuss the way forward with McCarthy, House Democratic Chairman Hakeem Jeffries (D-N.Y.), Senate Majority Leader Chuck Schumer (D-N.Y.), and Senate Minority Leader Mitch McConnell (R-Ky. .). The group failed to reach an agreement, but talks are ongoing at employee level to avoid a default.

Here are nine questions you might ask about the debt ceiling and its debate.

What is the debt ceiling?

The "debt ceiling" or "debt ceiling" is a cap on how much debt the federal government is allowed to accumulate. The Constitution requires Congress to authorize the issuance of debt instruments. This would allow the government to borrow money to meet its existing legal obligations, such as Social Security and Medicare benefits, military pay, interest on the federal debt, tax returns, and other payments.

"It used to be that every time there was a sovereign debt auction where you borrowed, Congress would pay for that auction," said Jason Furman, a senior economic adviser to former President Barack Obama and a professor of economics at the Harvard University a new law.

"In 1917, the United States had to borrow a lot of money for World War I," he said. "To make this process easier and easier, Congress put in a new system that said, you can borrow that amount of money, it comes back to us and we're going to raise the money."

Congress increases or suspends78 times the debt ceiling since 1960, according to the Ministry of Finance.

How do experts know when the government really has run out of money?

Economists are studying how much revenue the government is likely to bring in through taxes, when those payments are likely to hit financial accounts, and what debt payments are planned to determine a timeline, the X-date, by which debt authorities are likely to be exhausted.

However, the Treasury has tools at its disposalExceptional Measuresto avoid failure. These include shifting investments and using accounting tools to move money.

federal governmentTechnically, the debt ceiling was reached in JanuarySince then, unconventional measures have ensured that the payments flow. Experts can't give an exact date when the money will run out, but they can give a rough range of where it's likely to fall at some pointEarly June or possibly as late as July or August.

Why are there disputes?

Debt is an unpopular concept in American politics in general.

Every vote a lawmaker casts is part of that person's political record, and many lawmakers don't want to appear as if they are committing to further federal borrowing or spending.

Legislators also like to give irrelevant priorities to draft legislation that must be passed as mandatory. This has made the debt ceiling a major target of political wrangling.

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California House Speaker Kevin McCarthy (left) and Senate Majority Leader Chuck Schumer (right) listen to President Biden before a May 9 Oval Office meeting on the debt ceiling. Also present were Senate Minority Leader Mitch McConnell of Kentucky and House Minority Leader Hakeem Jeffries of New York.Evan Vucci/AP Hide title

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Evan Vucci/AP

California House Speaker Kevin McCarthy (left) and Senate Majority Leader Chuck Schumer (right) listen to President Biden before a May 9 Oval Office meeting on the debt ceiling. Also present were Senate Minority Leader Mitch McConnell of Kentucky and House Minority Leader Hakeem Jeffries of New York.

Evan Vucci/AP

“Everyone uses [bills to increase] The debt ceiling, their pet policy," said Maya MacGuineas, chair of the Federal Budget Committee. "The real problem is that people are actually talking about defaults now."

In the past, votes to raise the debt ceiling have been relatively calm and uncontroversial. That changed in 2011 when the country was on the verge of default.

Mark Zandi, an analyst at Moody's Analytics, said there have been political rows over debt before, but none as dangerous or momentous as that of 2011.

"Until the very end, it wasn't clear if lawmakers found a way to agree to the dotted line and raise the limit," Zandi said. “I think the stock market was down almost 20% at times during the day. That's a beautiful thing. Big market down.”

At the time, House Speaker John Boehner, an Ohio Republican, was at an impasse with Obama over spending. Republicans want deep spending cuts and a cap on federal spending growth after the cuts take effect.

Obama insisted that Congress should raise the debt ceiling without unnecessary action -- a so-called clean raise.

Congress finally agreed to raise the debt ceiling and a ceiling on future spending, but not before Standard & Poor's rating agency downgraded America's debt rating for the first time.

Many economists say today's conditions are eerily similar to the political struggles of 2011 and there are grave fears that the country could default.

What happens if you don't improve?

The Treasury will not be able to make any payments when they are due. A failure to make payment of any type or amount will be considered late payment.

Some Republicans have suggested choosing which debts to pay off for themselves.A system called payment priority.Congress would have to pass legislation to make this possible, which is politically unlikely. From a practical point of view, too, implementation may be impossible, say most experts, and the idea is not yet being seriously considered as a solution.

Has the US ever failed to repay this debt?

NO.

This is one of the reasons why the federal government can easily sell stocks and government bonds to investors around the world and why the dollar is one of the most trusted currencies.

"Treasury bonds are the most trusted debt instrument in the world, so much so that even if there were an economic crisis that originated in the United States, people would come out of faith to buy Treasury bonds," MacGuineas said. "You believe in America. They think they'll get paid if anyone questions that because we've defaulted and aren't paying the interest owed. We will never again be able to play our most trusted people in the same role again. "Capacity we had before"

Would limiting or cutting spending now solve the problem?

No, the debt limit is tied to the money spent on legislation that Congress has already passed.

"As a mathematical result of legislation passed by Congress, you have to borrow a certain amount," Furman said. “This borrowing is not a unilateral thing that President Biden wants to do to make his pet projects a reality. It's about doing what Congress tells you to do."

In fact, some of the accumulated debt is the result of legislation passed by past presidents, including Donald Trump.

The spending ceiling and other changes contained in a bill passed by Republicans in the House of Representatives are separate measures to deal with future debt accumulation and not the current need to raise the debt ceiling.

What else does the default affect?

A US default could have a huge negative impact on the entire global financial system. A deterioration in the country's creditworthiness could hurt the value of US Treasury bonds in the long term and make the country less attractive for investment.

"I'm really worried about the real possibility of a default, which is a very dangerous sign that the US can't manage itself in the usual way," MacGuineas said. "We should all be worried about the debt ceiling itself, and what it's doing to us." political influence."

Zandi warned that the consequences could go beyond investment and lending rates.

"Don't worry about your stock portfolio, worry about your job," he said. “Because many jobs will be lost. Unemployment will be much higher. Is the economy already trying to avoid a recession with high inflation and high interest rates? That's definitely going to drive us, and, you know, it's going to be about layoffs. Stock portfolio It will be the least of people's worries.

Furman said it could be worse than the 2008 financial crisis, when the collapse of Lehman Brothers triggered the global financial crisis.

"It's probably worse than Lehman Brothers, where basically everyone was asking for their money back because they didn't believe in the collateral anymore," Furman said. "And it's tantamount to a run on the global financial system."

Is the default same as shutdown?

Habit. The government will shut down if Congress does not approve an annual spending bill by the fiscal year-end on September 30.

The two issues are sometimes related, as lawmakers occasionally extend the debt limit to purposely align it with the end of the fiscal year so broader spending discussions can coincide with the debt mandate.

Is there any other way to solve this problem other than raising the debt limit?

Most experts agree that current debt containment programs are not working. MacGuineas, chairman of the federal budget committee, said Congress should reassess debt and spending priorities, but the debt ceiling mechanism doesn't really compel him to make a decision.

"The debt ceiling is a terrible attempt to enforce fiscal responsibility," she said. "That makes no sense. It means that after voting to borrow lots of money, it will vote on whether to actually pay those bills. That's kind of stupid."

Instead, she proposes a system in which Congress approves raising the debt limit when legislation is passed.

Other economists have suggested scrapping the debt ceiling altogether.

Other, less popular, suggestions include minting a platinum $1 trillion coin to pay off debt, or raising it so high that the next debate will stall for years or decades.