The debt ceiling is a limit imposed by the law on the federal government’s borrowing to pay its bills. It was raised to $31.4 trillion on December 16, 2021, but the Treasury Department has been using “extraordinary measures” to keep borrowing since then.
What are the consequences of not raising the debt ceiling?
According to the Congressional Budget Office, those measures will run out in the coming few months unless Congress acts to raise the debt limit again. If that happens, the US could not pay all its obligations, such as interest on its debt, Social Security benefits, military salaries, and tax refunds.
This could trigger a financial crisis, as investors would lose confidence in the US government’s ability to repay its debt. The credit rating agency Fitch Ratings has already put America’s AAA rating on negative watch, warning of a possible downgrade if the debt ceiling is not raised soon.
What are the possible solutions?
Biden and McCarthy have been negotiating for weeks to find a bipartisan solution, but they have faced resistance from their parties. Democrats want a clean debt ceiling increase without any conditions or spending cuts. Republicans want any increase to be paired with spending reductions or reforms.
According to recent headlines, the two leaders are nearing a compromise to raise the debt ceiling by about $2 trillion, enough to cover the government’s borrowing needs until after the 2024 presidential election. The deal would also include spending caps on most items except defense and entitlement programs.
What are the next steps?
The deal is not final yet and needs the approval of Congress and signed by Biden. The House is expected to vote on it as early as Sunday, while the Senate could follow suit next week. However, the deal could face opposition from some hardline lawmakers in both parties, who may try to block or delay it.
Biden and McCarthy have expressed optimism that they can reach an agreement and avoid a default. Biden said on Thursday that he was “making progress” in the talks, while McCarthy said he was “hopeful” that they could find a solution. “We have a responsibility to protect the full faith and credit of the United States,” Biden said. “We’re not going to let that happen.”