Lawmakers missed a Saturday deadline to extend former President Donald Trump's two-year suspension of the nation's borrowing limit, which was automatically reinstated at the beginning of August.
The debt ceiling, which hit $22 trillion in August 2019, is the legal limit on the total amount of debt that the federal government can borrow on behalf of the public, according to the Committee for a Responsible Federal Budget (CRFB). Once the suspension lifted, the new limit was reinstated around $28.5 trillion, a figure that includes debt held by the public and the government.
On Monday, the Treasury Department began deploying so-called "extraordinary measures" to ensure the government can continue to pay its obligations for the time being. But if the debt ceiling is not raised or suspended, the U.S. government can no longer issue debt and will soon run out of cash on hand.
"The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic," Treasury Secretary Janet Yellen wrote in a recent letter to Congress.
The nonpartisan Congressional Budget Office estimated at the end of July that the government would probably run out of money to pay its bills sometime in the fall, likely October or November. The new debt ceiling, which will include the new spending approved by Congress over the course of the past two years, will likely be around $28 trillion, the CBO said.
It's unclear how or when lawmakers plan to raise or suspend the debt limit.
Senate Minority Leader Mitch McConnell said recently that he doesn't expect any Republican senators to vote to raise the debt ceiling – meaning that unless Democrats can win over at least 10 GOP senators in order to bypass the 60-vote filibuster, they will need to raise the debt limit in their $3.5 trillion reconciliation bill.
"I can't imagine there will be a single Republican voting to raise the debt ceiling after what we've been experiencing," McConnell said in an interview with Punchbowl News published last week.
Democrats slammed McConnell for suggesting that Republicans will play brinkmanship with the nation's debt and federal spending.
"This debt is Trump debt," Senate Majority Leader Chuck Schumer said in remarks on the Senate floor. "It's COVID debt. Democrats joined three times during the Trump administration to do the responsible thing, and the bottom line is that Leader McConnell should not be playing political games with the full faith and credit of the United States. Americans pay their debts."
If the U.S. failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious and negative economic implications. Interest rates would likely spike, and demand for Treasuries would drop; even the threat of a default can cause borrowing costs to increase.
"Failing to increase the debt limit would have absolutely catastrophic economic consequences," Yellen told lawmakers in June.
While the U.S. has never defaulted on its debt before, it came close in 2011, when House Republicans refused to pass a debt-ceiling increase, prompting rating agency Standard and Poor's to downgrade the U.S. debt rating one notch.