The debt ceiling is the legal limit on the amount of money that the United States government can borrow to meet its financial obligations. It is set by Congress and serves control setting toward government spending. When the debt ceiling is reached, the government is not allowed to issue new bonds or borrow additional funds, unless the debt limit is raised or suspended.
Congress is facing difficulty with the debt ceiling as it has become a contentious issue due to differing political and fiscal ideologies. Members of Congress use the debt ceiling as a bargaining chip to push for policy changes or to address concerns about government spending and the national debt. Usually happening on the right side of the aisle, conservatives can use this ceiling as a call to cut government spending.
But, if Congress were to fail to raise or suspend the debt ceiling and the government did exhaust all available measures to avoid default, there would certainly be some consquences:
1. Government Shutdown: The government may experience a partial shutdown, as it would be unable to fully fund all its operations and obligations. This can lead to the furlough of federal employees, closure of government offices, and disruption of public services.
2. Economic Instability: A default on U.S. debt would have severe repercussions on the economy, both domestically and globally. It could lead to a loss of confidence in the U.S. government's ability to meet its financial obligations, resulting in higher borrowing costs, reduced investment, and market volatility. This can potentially trigger a recession or financial crisis, exactly what the economy does not need right now.
3. Decrease in Credit Rating: A default would likely result in a downgrade of the U.S. credit rating by credit rating agencies. This downgrade would make it more expensive for the government to borrow money in the future and could have ripple effects throughout the financial system. Meaning, once the crisis was solved borrowing money in the future would be much harder. Do to the fact that we have already failed to pay before.
4. Social Security and Medicare Disruptions: The government may struggle to make timely payments to programs like Social Security, Medicare, and Medicaid. This could lead to delays or reductions in benefits, causing significant hardships for recipients who rely on these programs.
They are a lot worse than they sound and it is crucial for Congress to reach an agreement to raise or suspend the debt ceiling in a timely manner. This often involves negotiations, compromises, and bipartisan cooperation to ensure the continued functioning of the government and the stability of the economy.