The debt ceiling, or the debt limit, is the maximum amount the federal government can borrow to finance obligations that lawmakers and presidents have already approved.
"The U.S. government, when they reach that limit, they can no longer take any additional debts," said Alexandre Padilla, chair of the Economics Department at Metropolitan State University Denver. "The debt ceiling has been raised over 100 times between World War II and nowadays."
It currently stands at $31.4 trillion. On Jan. 19, the U.S. hit its limit on how much money it can borrow. That forced the Treasury Department to initiate what it is calling "extraordinary measures" to make sure the nation has enough cash to fulfill its obligations. Essentially, the Treasury is altering certain federal investments to preserve the country's credit until summer. That buys lawmakers time to pass legislation to either raise or suspend the amount the government is allowed to borrow. If the government isn't able to borrow, it wouldn't have enough money to pay its bills.
"And if Congress don't agree on raising the debt ceiling, the government is going to default on their debt which could lead to very tragic and dramatic consequences from the economic viewpoint," Padilla said.
It's something that has never happened, but if it does, Americans will likely be affected. Delayed payments or defaults could affect social security payments, veterans' benefits, federal employee salaries and so much more. It could even spark millions of job losses and a recession. On the U.S. level, we need to keep borrowing to fund expenditures and a default would make that stop immediately. Internationally, the U.S. dollar is where countries keep their currency for international trade. So, the world's financial system would be damaged.
As Congress goes back and forth, Treasury Secretary Janet L. Yellen has written to House Speaker Kevin McCarthy, saying, "I respectfully urge Congress to act promptly to protect the full faith and credit of the United States."