What is the US “debt ceiling” and what happens if it is not raised?

The US government has hit its self-imposed spending limit. Unless that limit is raised, the government will run out of money. Saloni Sardana explains what would happen then.

US Capitol building
US Senators must pass a bill to raise the debt ceiling
(Image credit: © Getty Images)

Somewhat unusually, the US government has a self-imposed legal limit on the amount of money it can borrow to fund itself. This is called the “debt ceiling”. If it looks like the government needs to spend more than this limit, then that must be authorised in Congress. If Congress fails to authorise a new limit, the government must stop spending money. All activity funded by the federal government comes to a sudden halt.

In less polarised times, a rise would usually be approved with little fuss. But for the last decade or so, the debt ceiling has been used as a political weapon, with opposition politicians happy to use the threat of a government shutdown to further their own aims, score political points, or just cause trouble.

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Saloni Sardana

Saloni is a web writer for MoneyWeek focusing on personal finance and global financial markets. Her work has appeared in FTAdviser (part of the Financial Times),  Business Insider and City A.M, among other publications. She holds a masters in international journalism from City, University of London.

Follow her on Twitter at @sardana_saloni