What does it mean to suspend the debt ceiling?
Congress needs to find a solution to lifting the debt ceiling before the end of the month or the Capitol will grind to a halt without any funding.
The debt ceiling is a borrowing cap that Congress sets. It isn't funding for new legislation, but for making sure legislation approved in the last year has enough money to function. Under the Trump administration, it was raised three times, the last time being in 2019.
The House bill would suspend the limit for one year, meaning we could have all these negotiations again in September 2022. Republicans are saying they will not support a debt ceiling increase that in their opinion would lead to wasteful spending. The bill is held up in the Senate and the results of it not being passed could be disastrous.
Suspending the debt ceiling would alleviate this
What suspending the limit means is legislating for ignoring the limit on government debt. At the moment, the debt stands at $28.5 trillion. While this is a huge amount of debt, there is confidence in the American economy that one day it could pay all this debt off, or at least if you were an investor you could count on the US government to get your money back if you invested in it. If this limit is suspended, then the government is free to borrow to pay for plans without the worry of a government shutdown.
The increase to the debt ceiling is held up because of the Senate. The House has already supported an increase, voting 220-211 in support on Tuesday. However, the Senate Republicans are supposedly adamant that they will not support a raise at this stage, although negotiations are ongoing.
Where this becomes difficult is the US's outstanding debt that needs to be repaid at the end of the month. If this isn't paid in time, then the US would default on a debt for the first time in its history. According to financial services firm Moody's Analytics, a default would be a "catastrophic blow" to the economic recovery.
What happens if neither the increase nor the suspension come to pass?
Even if it was resolved quickly, Moody's Analytics continued, Americans would pay for a default for generations. Nearly 6 million jobs could be lost, the unemployment rate would climb back up to nearly 9% and stock prices would be cut by almost a third, wiping out $15 trillion in household wealth.
The Treasury has access to "extraordinary measures" to keep the government going. However, these measures are due to run out in mid-October, risking a government shutdown. If this were to happen then there would be threats to many federal payments, such as social security, soldiers salaries and the Child Tax Credit.