What is the US debt ceiling and what will happen if it is not raised?

theguardian.com:

The US faces an “unprecedented economic and financial storm”, the treasury secretary, Janet Yellen, warned on Tuesday as Joe Biden met with his Republican counterparts for the latest in a series of tense talks over the US debt ceiling.

Time is quickly running out to find a solution, said Yellen. Without raising the debt limit, the US government will default on its bills, a historic first, with likely catastrophic consequences. Federal workers would be furloughed, global stock markets would crash and the US economy would probably drop into a recession.

Here is more on the debt ceiling and what it means for the US government:

The debt ceiling is the limit on the amount of money the US government can borrow to pay for services, such as social security, Medicare and the military.

Each year, the government takes in revenue from taxes and other streams, such as customs duties, but ultimately spends more than it takes in. This leaves the government with a deficit, which has ranged from $400bn to $3tn each year over the last decade. The deficit left at the end of the year ultimately gets tacked on to the country’s total debt.

To borrow money, the US treasury issues securities, like US government bonds, that it will eventually pay back with interest. Once the US government hits its debt limit, the treasury cannot issue more securities, essentially stopping a key flow of money into the federal government.

Congress is in charge of setting the debt limit, which currently stands at $31.4tn. The debt ceiling has been raised 78 times since 1960, under both Democrat and Republican presidents. At times, the ceiling was briefly suspended and then reinstated at a higher limit, essentially a retroactive raising of the debt ceiling.

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