The Debt Ceiling Will Hurt American Families In One Specific Way

Unless the Democratic party passes a bill to raise the debt by the end of day Thursday, September 30th, otherwise known as the end of the federal government’s fiscal year, the Federal government will shut down on Friday, October 1st.

The bill, which was rejected by Republicans on Monday evening, will raise the debt ceiling through next December. Raising the debt ceiling will allow the federal government to pass major spending packages like Biden’s Build Back Better plan. That bill will put historic investments in American families, provide government services, and more.

But most importantly, raising the debt ceiling will allow the federal government to continue to operate and will empower the Treasury to pay bills, and existing debt, down.

If the debt ceiling is not suspended or raised, the government could not only shut down (a move that would require federal employees to work without pay or be furloughed altogether and eventually shut down essential government services) — but could also default on the national debt by October 18th. That would be unprecedented. It has never happened before and the global implications are vast.

So, for parents who are busy living their lives and maybe not focusing on the minutiae of Senate procedural madness, what does all this mean? What does it mean if the debt ceiling isn’t suspended or raised? What would it mean if the government went into default? What would happen to families if Senate Republicans allow this to happen — and why are they doing this? And finally, will it actually happen?

What is the Debt Ceiling, and Why Does it Need to Be Raised?

The debt ceiling didn’t become a part of the legislative process until 1917.

Basically, the debt ceiling is the limit of the amount of money the federal government is allowed to borrow in order to do things. That it needs to be raised is not novel — per NPR, this will be nearly the 100th time the debt ceiling has needed to be raised. Without raising the debt ceiling, the Democrats won’t be able to pass new spending packages — like the bipartisan hard infrastructure package and the $3.5 trillion human infrastructure package that are two hallmarks of President Biden’s agenda — and will run out of money to fund other services. The government will eventually shut down, and the Treasury will run out of money and default by October 18th.

When it was raised in the ‘80s and ‘90s, NPR described it as “routine,” “an afterthought,” and “not even newsworthy.” That has obviously changed in recent decades, as it has been the reason why the government has shut down several times since.

Currently, Republicans, whose votes are needed to avoid a filibuster on the law that will suspend the debt ceiling through December 2022, have chosen to unanimously vote no on the debt ceiling and obstruct Biden agenda and the functioning of the federal government. The delays could harm families, the wider economy, and the future of major family-friendly packages as a whole, but more on that later.

What happens when, or if, Congress doesn’t raise the debt ceiling?

Most immediately, the government (or rather, parts of it) will shut down, like what happened in 2011 and 2013. Ultimately, workers would be furloughed and some non-essential government services would stop. Skeleton crews would run the most essential services like the disbursement of the Supplemental Nutrition Assistance Program and Women, Infants, and Children benefits.

The Treasury Department would have enough money for a few weeks to cover their bills and the lapse in being able to borrow cash from itself. But Treasury Secretary Janet Yellen has already said that money would run out by October 18th.

If the debt ceiling was not suspended or raised by that point, the federal government would go into default — something that has never happened before, and would seriously harm the global economy and the Treasury, and the federal government’s ability to borrow cash in the future.

What would it mean if the federal government went into default?

This is where it gets complicated. This would mean that the government cannot pay down its existing debts. For the United States, the majority of debt is held in bonds — so if the country went into default, the government would “stop paying the money it owes US Treasury bondholders.”

The problem is that because the US has never defaulted on its debt before (which makes holding bonds through the Treasury a very safe place to invest) it’s hard to know what would happen if it did.

But it would not be good. If we did, global markets would be affected, the value of the bonds that investors hold would decrease, and it would be harder for the US to continue to borrow in the future. In other words, it’s a path no one in the world wants to go down. (Per BBC, Goldman Sachs estimates that some $175 billion would be instantaneously taken out of circulation in the U.S. which could lead to a major recession.)

What would happen to families if the government shut down because the debt ceiling wasn’t raised?

Obviously, the global financial implications of if the worst-case scenario happened and the government went into default will clearly affect families all over the world, especially if the economy were to suddenly re-enter a deep recession due to going into default.

In terms of a simple government shutdown, food assistance, like SNAP and WIC, might be okay for some time — the Department of Agriculture has already updated their contingency plan if the government shuts down to disburse benefits as long as they can. But the longer the government is shut down, and if the government goes into default, the Treasury could be unable to meet its essential financial obligations to its citizens, i.e. food assistance, unemployment insurance, retirement benefits, and more. Social Security payments, for example, could not go out once the government runs out of money, federal civilian employees and troops could not be paid, veterans may not get their benefits, etc.

In past government shutdowns, for example, 800,000 federal civilian employees were nearly furloughed in 2011, 800,000 were put on leave on October 1st in 2013, in 2018, some 350,000 federal employees were furloughed for nearly 40 days.

Will the government actually shut down?

Maybe! But the Democrats apparently have tools at their disposal in order to raise the debt ceiling.

They can use budget reconciliation to raise the debt ceiling without a single Republican vote, for example, though that’s not as optimal, per analysis from The New Republic.

They could mint a trillion-dollar coin (a favorite tool of progressives, though deeply unlikely) or they could nuke the filibuster in order to pass the debt ceiling measure without needing a filibuster-proof majority of the Senate in support of the bill.

While Democrats haven’t said what they will do for sure, major party officials like House Speaker Nancy Pelosi have said that “we will keep our government open by September 30th.”

Unless it happens, families, and the world, will suffer.