In what has become a terrifying game of chicken, President Joe Biden and congressional Republicans have reached a stalemate over the national debt ceiling.
The deadline to raise it could come as soon as June 1. That’s when it is estimated the United States will run out of money and fail to pay its bills, including debts to bondholders and outlays on everything from national parks to Social Security checks. This would be a historic and catastrophic first that economists say would send the global economy into chaos.
As partisanship has become further entrenched across the country and especially in Washington, a previously routine congressional vote is emerging as a lightning rod for debate over government spending.
Here’s what to know about the debt ceiling, why it gets raised, and what happens if we default.
What is the debt ceiling?
The debt ceiling is the limit placed by Congress on the amount of debt the government can accrue. If, to pay its bills to those it borrowed from and dole out money to everything from Medicare benefits to military salaries, the government needs more money, the debt ceiling has to be raised.
Created in 1917, the legislative cap has to be raised by a majority vote in both the Senate and the House of Representatives. That vote does not pledge any additional spending. Iit merely raises the limit the government can borrow to pay back commitments already agreed upon by Congress.
However, over the years both parties have tied it to government spending and used the debt ceiling as a cudgel to force the hand of the president.
That is how we arrived at our current moment.
Republicans, who have a majority in the House, want to cut government spending and are refusing to raise the debt ceiling until Biden and Democrats agree to spending reductions. Biden and Senate Democrats, however, are arguing that any debate about government spending should be separate from a vote on raising the debt ceiling.
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What happens if the debt ceiling is reached?
The debt ceiling has already been reached. The government hit its borrowing limit in late January. Since then, US Treasury Secretary Janet Yellen said “extraordinary measures” have been taken so the country can pay its bills and avoid a default as the two parties battle it out. A default would occur if the U.S. fails to pay bondholders who have lent money to the government.
What happens if the government defaults on the debt?
The United States has never defaulted on its debts. That’s part of why U.S. Treasury bonds are viewed as a safe investment and used by some banks as a backstop to counteract risky investments. A default would throw both the domestic and global economies into chaos.
The U.S. Treasury website warns that a default on the debt “would precipitate another financial crisis and threaten the jobs and savings of everyday Americans.”
In 2013, when the government careened toward default before raising the debt limit at the last minute, the economy lost 1% in GDP.
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When was the last time the debt ceiling was raised?
The debt ceiling is routinely raised to accommodate repayment of the country’s debt. The last time it was raised was in 2021.
While it has become increasingly politicized, for years it was viewed more as bureaucratic government business than a mechanism for policy change.
In 2011, then-President Barack Obama and Republicans in Congress reached a stalemate, but they agreed on a deal to raise the ceiling just two days before the Treasury would have run out of money.
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What does the 14th Amendment have to do with debt ceiling?
As fear grows over the failure to reach a deal on raising the debt ceiling, the White House is said to be considering an option of last resort: an untested legal theory which involves invoking the 14th Amendment.
After a meeting with congressional leaders on May 9, President Biden told reporters he had not ruled it out as an option.
The 14th Amendment deals mainly with equal protections granted to citizens under the law. However, the fourth section reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
Some legal scholars believe Biden could draw upon this clause to claim that he has the power to authorize the Treasury to repay U.S. debts even if Congress does not raise the ceiling. The move, considered but ruled out by the Obama administration, would likely get caught up in the courts.
How many countries have a debt ceiling?
Demark also has a debt ceiling. However, it does not share in the same debate or political brinkmanship.
For one, parliament has more principal power in the Danish government, preventing the kind of legislative-executive branch showdown seen in the U.S. Additionally, CNN reports, Denmark is more fiscally conservative than the U.S., so it has less debt and set its original ceiling much higher than its actual debt levels.
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What does it mean to raise the debt ceiling?
Raising the debt ceiling means increasing the amount of debt the country can accrue in order to pay its bills.
It is unrelated to future spending, and is instead a limit on the amount of money the government can borrow to meet its existing legal obligations like payments to Social Security and Medicare.
US government bonds have long been viewed as a safe investment because debts are always paid back on time. However, if the US were to default and for the first time in history fail to pay back those debts the value of government bonds would depreciate and the global market would enter a tailspin.