The federal law, which dates back more than a century, restricts how much the U.S. government can borrow, setting a “ceiling” on the total amount of its debt. Once this level is reached, the US Treasury can no longer take on new debt.
This creates a problem because the government spends more than it takes in and relies on borrowing to cover the gap. The country is now at the current ceiling of $31.4 trillion.
Fluctuations in both federal tax receipts and spending make it impossible to predict exactly when the government will run out of borrowing authority, but Treasury Secretary Janet Yellen has predicted that “date x” will come soon, as early as June 1..
Political points
Congress can pass laws that raise the debt limit and has repeatedly done so. According to the Treasury, Congress has acted 78 times to raise, extend or revise the debt limit. Of these 49 were under Republican presidents and 29 under Democratic presidents. However, fights over the debt ceiling have become more intense over time.
The Republican-controlled House passed a bill last month to address the debt ceiling, but it included a number of conservative priorities, including reversing President Joe Biden’s student debt forgiveness, recovering unspent funds related to COVID-19 and expanding work requirements in social welfare programs, such as food stamps.
Biden had stuck to his position that Congress should raise the debt ceiling without conditions. He is now negotiating with House Speaker Kevin McCarthy, R-Calif., about a possible compromise, but the two sides still appear distant.
Federal spending on Social Security benefits and military paychecks could be delayed as the government must wait until more tax receipts come in to make payments. It would also likely result in significant economic damage with a doubled unemployment rate and hundreds of thousands of lost jobs in Texas alone.
No. It would be unprecedented. A default would undermine faith in US debt, long considered one of the world’s safest investments. The dollar’s power as a global currency could fade. The the repercussions will be felt around the world.
Related: Debt default would hit Texans with higher mortgage rates, job losses
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