What Happens if the Debt Ceiling Isn’t Raised?

While unlikely to occur, a default on U.S. debt would have serious impacts on global financial markets.

Lawmakers in Washington set government spending and revenue plans every fiscal year, usually producing a shortfall that many of us know as the federal budget deficit. The accumulation of these fiscal deficits is what is called the debt of the U.S. government. The debt ceiling limits the amount of borrowing that can take place to pay for the deficits that have occurred and were approved by Congress in the past. It is not related to future expenditures.

The government’s overall borrowing authority is separate from its yearly revenue and 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 negotiating point within larger political debates.

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