Unless Congress raises that limit soon, the government will run out of the authority to borrow and pay its bills on Thursday, the Treasury Department says.
A default would challenge the U.S. dollar's status as the world's "reserve" currency. More than 60 percent of all foreign country reserves are in U.S. dollars, the prime currency in international trade.
"Without enough money to pay its bills, any of its payments are at risk including all government spending, mandatory payments, interest on our debts, and payments to U.S. bondholders," the bipartisan Committee for a Responsible Federal Budget said in a recent report.
A look at what people need to know about the two fiscal matters:
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The debt ceiling is the legal limit to all federal borrowing, an absolute ceiling on the national debt that cannot be breached.
It can be raised.
Since Congress first established a limit in 1917, it has been raised roughly 100 times. Raising the statutory limit does not authorize borrowing for new spending. It only allows the government to keep borrowing to pay existing bills.
The government borrows money mostly by selling Treasury bills, notes and other securities, including U.S. savings bonds. Individuals, mutual funds, corporations and governments worldwide buy the bonds.
Paying interest on these bonds is one of the government's largest single expenses.
In the budget year that ended Sept. 30, the government made $396 billion in interest payments, including payments on bonds held in some government accounts such as the Social Security Trust Fund.
The national debt is the accumulation of annual budget deficits. It first crossed the $1 trillion mark early in the administration of President Ronald Reagan.
It stood at $10.6 trillion when President Barack Obama took office in January 2009 and is $16.7 trillion today bumping up against the debt limit, which is also $16.7 trillion rounded off.
Recently, the Treasury Department has used complicated accounting maneuvers to keep from technically exceeding the limit. But it's running out of such tricks.
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There are a couple of Hail Mary plays the government could try if the deadlock persists: selling gold from U.S. reserves, selling or leasing government buildings or national parklands and minting special large-denomination coins.
The Obama administration has shown little interest in such steps.
One possibility was suggested in 2011 by former President Bill Clinton and more recently by House Democratic leader Nancy Pelosi of California: have Obama raise the ceiling on his own, citing the part of the 14th Amendment of the U.S. Constitution that says "the validity of the public debt of the United States, authorized by law ... shall not be questioned."
Obama was asked at a Twitter town hall forum in July whether he would use that amendment as the basis to raise the debt ceiling. "I don't think we should get to the constitutional issue," he tweeted. "Congress has a responsibility to make sure we pay our bills. We've always paid them in the past."
His spokesman Jay Carney has said the administration doesn't believe the amendment gives the president the authority to ignore the debt ceiling.
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While budget deficits are coming down, the government continues to add to the national debt.
The deficit represents the annual difference between the government's spending and the tax revenues it takes in. Each deficit contributes to the national debt. The last time the government ran an annual surplus was in 2001.
The annual deficit declined to roughly $642 billion for the just-ended budget year, the first time in five years it has dropped below $1 trillion. It was $1.4 trillion when Obama took office in 2009.
Still, the government must borrow 19 cents for every dollar it spends, pushing up the nation's overall debt level.
One reason that keeps increasing: the army of retiring baby boomers leaving the workforce and beginning to collect Medicare and Social Security benefits. The two programs provide health care coverage and retirement payments to the elderly.
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Obama and Democratic leaders denounce as a form of blackmail Republican efforts to use the shutdown and debt limit debate to delay or defund Obama's health care law.
Efforts by opposition parties to try to put strings on a president's debt-limit increases have been pretty standard going back at least to President Dwight D. Eisenhower in the 1950s.
"Congress consistently brings the government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans' benefits," Reagan said in a 1987 radio address. He was scolding the Democratic-controlled Congress for seeking to modify or defeat his proposal to raise the debt limit.
He raised the debt ceiling 18 times.
As a senator representing Illinois, Obama voted against President George W. Bush's 2006 increase in the debt limit, calling it a "leadership failure" and "sign that the U.S. government can't pay its own bills."
Bush won that battle.
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Follow Tom Raum on Twitter: http://www.twitter.com/tomraum
