Debt Ceiling: Will The US Default On June 1? What Will Happen If It Does? An Explainer

If US defaults, the federal government won't be able to pay salaries of federal employees, the military, social security and medicare. It will also shock global markets.

A crucial meeting between US President Joe Biden and the House and Senate leaders of both the parties on Tuesday to discuss budget priorities and raise the debt ceiling limit ended with no agreement. This is not a good news for the country that is running out of cash to pay its bills. Lawmakers have less than a month (till June 1) to pass legislation to increase or suspend the debt ceiling. If the US defaults, it may cause a global economic catastrophe.

What is debt ceiling?

In the US, the debt ceiling is a legislative limit on the amount of money that the US federal government can borrow. It was created under the Second Liberty Bond Act of 1917 and is also known as the debt limit or statutory debt limit.

When the debt ceiling is raised, the US Treasury must find other ways to pay expenses, like paying salaries of federal employees, the military, social security and medicare, as well as interest on the national debt and tax refunds.