That’s how many times in modern history the U.S. government has defaulted on its debt, despite frequent political standoffs over the government’s self-imposed borrowing limit.
Whether or not to raise that limit, the so-called debt ceiling, is the current flashpoint in Washington’s perennial budget battles. The limit—the amount of money the government can borrow to pay for spending it’s already committed to—was reached back on Aug. 1. Since then, the Treasury Department has been using various emergency financial maneuvers to continue to pay bills while buying time for Congress to once again suspend or raise the debt limit. The department will run out of wiggle room by around Oct. 18, Treasury Secretary Janet Yellen said in a letter to Congress last week, raising the specter of the U.S. government defaulting on its debts.
While politicians have frequently used the debt ceiling as a bargaining chip over the years, a default would send the economy into uncharted financial territory, as the U.S. hasn’t failed to pay its debts in any meaningful way since the early 1800s, according to a report by the Congressional Research Service. One notable showdown over the debt limit in 2011 led credit agencies to downgrade the U.S. credit rating, and another in 2013 caused a brief spike in interest rates, but on neither occasion did the U.S. actually go over the brink and default on its debt.
If that did happen, Social Security and Medicare payments, military wages, and other crucial activities could all be disrupted.
“A default would be a catastrophic blow to the nascent economic recovery from the COVID-19 pandemic,” economists at Moody’s Analytics said in a Sept. 21 report on the issue.
The two political parties remained at an impasse Tuesday. Senate Democrats plan to call a vote to suspend the debt ceiling this week, but Sen. Mitch McConnell, the Republican minority leader, said Monday he opposes that, and his party has enough votes to stop the measure with a filibuster. McConnell said the Democrats should use the budget reconciliation process to raise the debt limit without any Republican votes, but Sen. Chuck Schumer, the Democratic majority leader, said last week that process was too convoluted and a “non-starter.”
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