-You've probably heard about
the fight over the debt ceiling. -There's still no deal
on the debt ceiling. -Economic experts warn there would be dire
financial consequences, -$31 trillion before
a June 1st deadline. -And you might remember
government shutdowns. -Well, Congress is in, unfortunately,
a familiar position as it works to avoid
another government shutdown. -The countdown is on
this morning for lawmakers to come to an agreement
on a government funding package
before Friday's deadline. -But a default
on the national debt and a government shutdown
aren't the same thing. Here's how the two scenarios
are different. -The big difference with
going over the debt ceiling is the government
literally does not have the cash to pay the bills,
any bills, not just the part
that's annually appropriated, but Social Security benefits,
Medicare benefits, veterans' benefits, and interest
on the substantial federal debt. -America has actually never
experienced a default before. That's why it's always
such a big deal. Members of Congress,
as much as they may try to politicize lifting
the debt ceiling, it really has never gotten
to the point of default because the consequences
would be immense. -To understand what causes
a government shutdown, first you have to
understand appropriations. Appropriation bills provide
the financial resources necessary for the government to carry out its various
functions and services. When the government's
appropriations bill expires and Congress
has not passed a new budget, a shutdown is triggered. -So that is something that is
really felt immediately in D.C., in capital cities. But it takes some time for
the American public to feel it. The only way the public
really feels it is if they have plans
to go to a national park. They wouldn't be able
to do that. You'll see trash being
piled up in public parks. They also may not receive mail if it really goes on
for a very long time. There are economic consequences
to a government shutdown, but usually the government
opens back up at some point and you can remake
all of those losses over time. -The debt ceiling
is a bit different. Congress may agree to spend
more in special circumstances, like in the midst of a war,
recession, or global pandemic. When the government spends
more than what it earns, a deficit occurs. Because tax revenue alone
can't pay for the deficit, the Department of Treasury sells
bonds to make up the difference, paying interest to those
who buy the bonds. The debt ceiling is a cap
by Congress on the value of those bonds, or how much the government
can borrow to pay for what Congress
has already approved. The Department of Treasury
has already reached the current debt limit of $31.4 trillion
in January of this year, but has taken what they call
extraordinary measures to avoid default. They warned if an agreement
can't be made by early June, the government will
run out of money. -We still estimate
the Treasury will likely no longer be able to satisfy all of
the government's obligations if Congress has not acted
to address the debt limit by early June. -If we reach what's known
as the X date, the day where the Treasury
doesn't have enough money in its checking account
to pay every bill that comes in that day, somebody is not
going to get paid. It might be the people
who own government bonds, it might be federal employees,
it might be people who are expecting
a Social Security check. -U.S. Treasury bonds are often
used as a benchmark for other interest rates
and financial instruments, such as mortgages
and corporate bonds, because they're backed
by the full faith and credit of
the U.S. government. If the interest payments
on those bonds aren't paid, potential repercussions
include a downgrade of the United States
credit rating, increased borrowing costs for
businesses and homeowners alike, and a drop off
in consumer confidence that could shock
the U.S. financial market and tip the economy
into recession. -We have been able to,
in effect, live beyond our means, to spend
money that we had to borrow, only because a lot of people,
some in the United States, some big insurance companies,
some mutual funds, but a lot overseas, have been
willing to lend us the money, and they're willing
to lend us the money because they think that if you
have money to park somewhere, the absolute safest place to put
it is in a U.S. Treasury bond. If we don't raise
the debt ceiling, if one person doesn't get
their interest on time, we will lose
that reputation forever. -Even though the debt ceiling
has been raised 78 times since 1960, as politics
become more polarized, the debt ceiling negotiations
have been used as a bargaining chip
for Democrats and Republicans to advance other agenda items. -When one side starts
to think the other guy is winning the messaging war, that's when somebody's
going to blink. The hope is that that'll happen before we get
to the point of crisis. But it often --
even when we do this, it often ends up happening
at the very last minute.
