While the crisis over the so-called debt ceiling was temporarily averted after Senate leaders announced a deal to let the government keep borrowing through early December, it’s unlikely that we’ve seen the last of the debt ceiling battles—or the confounding terminology that gets thrown around during arguments about it.
In their speeches and public statements, politicians, and economists bandy certain words about that are rarely heard or seen outside the context of the debt ceiling battle, or that have special meanings when it comes to the issue. Here’s what some of the key terms mean:
The debt ceiling, or debt limit, is the limit that Congress has set for the amount of money the Treasury is allowed to borrow to pay for spending the U.S. government has already committed to—including Social Security and Medicare payments, military salaries, interest on the national debt, and a multitude of other expenses. The government hit the debt limit on Aug. 1 and would have run out of ways to keep paying its bills by Oct. 18, according to a recent estimate by Treasury Secretary Janet Yellen.
Default is when a borrower fails to pay its creditors—in this case, the borrower being the U.S. government and the creditors mostly people who hold the national debt in the form of Treasury bonds and other securities.
If the debt ceiling deadline passed without Congress raising or suspending it, the Treasury would have some hard choices to make. With money steadily coming in from taxes, it could pay some expenses but not others. Some economists believe the Treasury would prioritize paying interest on the national debt first, and everything else a little at a time, in order to minimize the damage to the financial system that could come from a default.
For instance, Social Security recipients might receive their payments late, or maybe not at all. The government would be impaired in performing its basic functions, the dollar would lose value, stocks would fall, and it could take decades for the U.S. economy to fully recover from a default, White House economics advisors warned. No one knows for sure exactly what would happen, though, since it’s never occurred in the modern history of the U.S.
Government shutdowns occur when Congress fails to authorize the annual spending that keeps the federal government running. While government shutdowns are sometimes discussed along with the debt limit, they are entirely different things. Government shutdowns, like the month-long partial shutdown between 2018 and 2019, can disrupt certain operations, like national parks and the activities of federal agencies, for as long as the shutdown lasts, causing economic harm.
“However, the economic impact of a shutdown is a pale shadow beside the impact of defaulting on the federal government’s obligations because of the debt limit,” White House economics advisors said in a blog post before the deal was reached.
During the latest crisis, Democrats have accused Republicans of blocking an increase to the debt ceiling, which may seem an odd thing to say considering the Democrats control all the levers of power needed to enact laws: the House of Representatives, the Senate, and the presidency.
Despite being in the minority, however, Republicans still have the power to obstruct legislation in the Senate thanks to the filibuster rule, which gives senators the ability to block bills they don’t like. A filibuster requires 60 votes to overcome, and the Democrats only have 50 (with Vice President Kamala Harris waiting in the wings as a tiebreaker). A process called budget reconciliation can get around the filibuster, but Sen. Chuck Schumer, the Democratic majority leader, has rejected using it on the debt ceiling issue, saying the process is too cumbersome.
Full Faith and Credit
Full faith and credit is an antiquated-sounding phrase that often comes up during debt ceiling debates.
“We’re able to borrow because we always pay our debt,” President Joe Biden said in a speech urging Congress to resolve the standoff. “We always pay what we owe. We’ve never failed. That’s America. That’s who we are. That’s what’s called for. It’s called ‘full faith and credit of the United States.’ It’s rock solid. It’s the best in the world.”
The phrase, which is borrowed from the U.S. Constitution, refers to the belief that the U.S. government can always pay its debts using its power of taxation.
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