Author: Kelsey Snell, May 15, 2023: https://www.npr.org/2023/05/15/1175733139/debt-ceiling

The federal government is perilously close to being unable to make payments on the country's debt. It is up to Congress to vote to increase the nation's borrowing cap, known as the debt limit. But House Speaker Kevin McCarthy, R-Calif., is in a standoff with President Joe Biden over Republican demands to tie the debt limit to spending caps and other policy demands.

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

Biden recently met with McCarthy, House Democratic Leader Hakeem Jeffries, D-N.Y., Senate Majority Leader Chuck Schumer, D-N.Y., and Senate Minority Leader Mitch McConnell, R-Ky., to discuss a path forward. The group failed to reach a deal but staff level talks are ongoing in an effort to avoid default.

Here are nine questions you may be asking about the debt ceiling and the fight over it.

What is the debt ceiling?

The "debt ceiling" or "debt limit" is a cap on how much debt the federal government is allowed to accumulate. Congress is constitutionally required to authorize the issuance of debt. Doing so then allows the government borrow to meet its existing legal obligations like Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds and other payments.

"It used to be that every time you did a Treasury auction where you borrowed, Congress would pass a new law just for that one auction," said Jason Furman, a top economic adviser to former President Obama and an economics professor at Harvard.

"In 1917, the United States needed to borrow a lot of money for World War I," He said. "So in order to simplify that process and make it easier, Congress shifted to a new system where they said, you can borrow up to this amount of money and then come back to us and we'll raise it."

Congress has increased or suspended the debt limit 78 times since 1960, according to the Treasury Department.

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

Economists look at how much the government is expected to bring in through tax payments, when those payments are expected to arrive in Treasury accounts and scheduled debt payments to determine a timeframe, known as an X-Date for when the debt authority might run out.

However, the Treasury Department has access to a few tools, known as extraordinary measures, to avoid default. Those measures include moving investments and deploying accounting tools to shift funds around.

The federal government technically hit the debt limit in January and extraordinary measures have kept payments flowing since then. Experts cannot pinpoint the exact date when funds will run out but they can identify a general range which is expected to fall sometime in early June or possibly as late as July or August.

Why is there a fight over it?

Debt has generally been an unpopular concept in American politics.

Every vote a lawmaker casts is part of that person's political record and many lawmakers do not want to be seen as signing off on more federal borrowing or spending.

Lawmakers also like to tack extraneous priorities onto bills that are seen as must-pass legislation. That makes the debt limit a prime target for political fights.

Speaker of the House Kevin McCarthy of Calif., left, and Senate Majority Leader Chuck Schumer of N.Y., right, listen as President Biden before an Oval Office meeting on the debt limit on May 9. Senate Minority Leader Mitch McConnell of Kentucky and House Minority Leader Hakeem Jeffries of New York also attended.

"Everybody uses [bills to increase] the debt ceiling for their favorite policies," said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. "The real problem here is that you now have people actually talking about defaulting."

In the past, votes to increase the debt limit were relatively quiet, non-controversial affairs. That changed in 2011 when the country came dangerously close to default.

Mark Zandi, an analyst at Moody's Analytics, said there have been political battles over the debt before but none were as dangerous or consequential as the 2011 fight.

"It wasn't clear up until the very end that lawmakers were going to figure out a way to sign on the dotted line and increase the limit," Zandi said. "The stock market at one point I think was down intraday almost 20 percent. That's a pretty large market swoon."

At the time, Republican House Speaker John Boehner, R-Ohio, was in a standoff with Obama over spending. Republicans wanted deep spending cuts and caps on how much federal spending could grow after the cuts were enacted.

Obama insisted Congress raise the debt limit without any extraneous policies –known as a clean increase.

Congress eventually reached a deal to increase the debt limit along with caps on future spending but not before the credit rating agency Standard & Poor's downgraded the nation's debt for the first time ever.

Many economists say the situation today is strikingly similar to the political fight in 2011 and there are serious concerns that the country could default.

What could happen if it's not raised?

The Treasury Department would be unable to make payments when they are due. Missing a payment of any kind or size would be considered a default.

The fight over the debt ceiling could sink the economy. This is how we got here
Some Republicans have suggested choosing which debts to pay, a system called payment prioritization. Congress would have to pass a law to make that possible, which is politically very unlikely. Most experts say it might also be impossible to execute from a practical standpoint and the idea is not being seriously considered as a solution at this time.

Has the U.S. ever failed to make these debt payments?
No.

And that is part of why the federal government is able to easily sell share Treasury bonds to investors across the globe and why the U.S. dollar is one of the most trusted currencies.

"Treasuries are the debt vehicle that are most trusted in the entire world to the point where even if there is an economic crisis that originated in the U.S., people come and buy treasuries because they trust them," MacGuineas said. "They trust the U.S. they trust the fact that they will get paid if that is called into question, because we actually do start to default and we don't pay the interest that is due. We will never be able to regain that most trusted role in the same capacity we had before"