What Happens if the Debt Ceiling Isn’t Raised?

Lawmakers in Washington set government spending and revenue plans, usually producing a shortfall that many of us know as the federal budget deficit. The debt ceiling limits the amount of borrowing that can take place to pay for the deficit and all the deficits before it.

The government’s borrowing authority is separate from its spending authority, although the two often create political tension at the same time. Typically, the debt ceiling is raised without much fanfare, but occasionally it’s used as a negotiation point within larger political debates.

While the Treasury can employ what are called “extraordinary measures” to fund the government as the debt ceiling nears, at some point, the ability to use these measures would run out.

When is the deadline for raising the debt ceiling?

Treasury Secretary Janet Yellen points to October 18 as the likely date beyond which the government would not be able to meet its debt obligations, but other estimates extend the timeline into late October or early November. The deadline remains fluid, but action on the debt limit is looking necessary sometime in October.

What happens if the U.S. defaults on its debt?

Prioritization of debt payments is a probable initial route, but a default would affect the government’s ability to meet its spending obligations, which include Social Security and Medicare in addition to interest payments.

Any missed payments would accrue interest, raising the costs for government functions. Additionally, U.S. debt ratings would likely be downgraded, increasing the cost of borrowing when the debt ceiling would eventually be raised.