But the U.S. has an extra step in the process: a congressionally set debt limit. This caps how much money the U.S. can borrow, which is, essentially, a ceiling on spending. (“Debt ceiling” is another term often used to refer to the congressionally set limit.) If the U.S. breaches the debt limit, it can no longer borrow money, and has to default on its existing debts. (Denmark is the only other country with a similar debt ceiling, although it raises its cap well in advance of nearing it.)
For most of the debt limit’s century-long existence, increases were largely uncontroversial.
But that has changed over the past three decades. Republicans, in particular, have used the passage of bills increasing the limit as leverage to try to force spending cuts on Democratic administrations. Democrats, too, have used it as a political tool: In 2006, Joe Biden, then a senator, joined his Democratic colleagues in opposing a debt ceiling increase to protest the cost of tax cuts and the Iraq war.
A crucial ingredient in this brinkmanship is divided government. Raising the debt ceiling is less of a problem when the same party holds power in both chambers of Congress and the White House. But when the government is divided, it makes the current scenario possible: A Republican-controlled House threatens to block a debt-limit increase that Democrats who control the Senate and White House would like to pass.
“The fastest way to guarantee that we have debt rating problems is to keep spending money we don’t have, and keep piling up debt, and that’s what we’re doing,” Representative Chip Roy, a Texas Republican, told CNN.
In short: If lawmakers have a problem with spending, the debt ceiling offers a way to protest. But the willingness of some Republicans to risk going into default poses potentially dire consequences.
A central role
Why does this matter? Because of the crucial role that U.S. debt plays in the global financial system.
When the U.S. borrows money, it issues U.S. Treasuries. (Heard of bonds that help pay for wars? Treasuries are like that.)
