The United States’ national debt is set to default on Thursday.
In a letter sent to lawmakers, U.S. Treasury Secretary Janet Yellen warned that the U.S. is expected to hit its $31.4 trillion debt limit this week.
Congress is working on the issue, but it remains to be seen if lawmakers on Capitol Hill will actually raise the debt ceiling.
The debt ceiling is the amount of money the U.S. is allowed to borrow to pay for its vast commitments.
Basically, in the U.S., the debt ceiling or debt limit is a legislative limit on the amount of national debt that can be incurred by the U.S. Treasury.
This limits how much money the federal government can pay on the debt they already borrowed.
Currently, the U.S. government borrows large sums of money in order to cover all of its expenses. However, decades ago, Congress created the debt ceiling in an effort to avoid having to approve each new debt individually.
Since then, lawmakers have raised the debt ceiling dozens of times. When this happens—Congress allows the government to take on enough debt to settle the spending obligations it has already made.
If Congress is unable to raise the debt limit in time, the U.S. can only use incoming cash to pay its current commitments which in effect would create a large deficiency.
This is the first debt limit fight since Republicans took control of the House. So far, House Speaker Rep. Kevin McCarthy has signalled that he might leverage the negotiations in order to secure deep spending cuts.
But President Joe Biden and a Senate controlled by Democrats strongly oppose spending cuts.
