Unless Congress acts to raise the federal government's debt ceiling, the Treasury Department will run out of the ability to borrow money by October 17. Treasury has said that the cash it now has on hand will run out completely on November 1, leaving the government in essence without money to pay its bills.
So what is the debt ceiling? It's a cap set by Congress on how much the government can borrow in order to pay its debts. And here's why it's important:
Warnings about not raising the debt ceiling have been dire. The major credit rating agencies have said they might consider the U.S. in default if it fails to pay its bills, and many economists have warned that there could be a major slowdown to the economy, with job losses alongside a rise in interest rates affecting a range of products from credit cards to home mortgages.
Other fears are that foreign investment in U.S. Treasurys and the dollar would dry up over worries about lost returns.
Federal debt is the amount of money the government currently owes for spending on payments such as Social Security, Medicare benefits, military salaries, interest on the national debt and tax refunds.
But It is not future debt. The debt limit simply allows the government to finance existing legal obligations that Congress and presidents of both parties have made in the past.
The debt ceiling idea came about in 1917. Before then, Congress had to approve borrowing for each item when the government needed money.
But in order to have more flexibility as the U.S. entered World War I, lawmakers at that time agreed to give the government approval for all borrowing as long as the total was less than a specific number. That debt limit number would be set by Congress.