|The debt ceiling, or debt limit, is a cap set by Congress on the gross debt the U.S. Treasury may incur. It was established in its present form by the Public Debt Acts of 1939 and 1941.|
Congress must approve another debt limit and set new spending by September 30 to stave off a government shutdown. The last debt limit was hit in March. The Treasury Department used accounting maneuvers to buy Congress several months to raise the limit.
|If you skip your credit card bill, your bank imposes a penalty, making your financial problems far worse. It's similar with the US government. But, because the debt is so large, the consequences of even a tiny hike in interest rates could be catastrophic.|
If markets believe that there is even a slim chance the U.S. might not pay its bills — and that's assured if the debt limit isn't raised — investors will demand that the U.S. pay more to borrow in the form of higher interest rates. A 2011 standoff in which the limit wasn’t raised until the last minute caused Standard & Poor's to downgrade the US's AAA credit rating for the first time. The delay in raising the limit caused the Treasury to pay an additional $1.3 billion in borrowing costs for that year alone.
|Trump sided with hard-liners in 2013, opposing any increase. “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!” he tweeted then. His tune will have changed significantly this time around.|