The $31 trillion question: What to know about the debt ceiling as doomsday nears

President Biden met Tuesday with House Speaker Kevin McCarthy and other congressional leaders in an effort to break the log jam over raising the debt ceiling.

Biden called the meeting “productive,” but with the clock ticking down towards a possible catastrophic U.S. government default, there is little sign of an impending breakthrough that would allow the government to pay its bills, including interest on the $31 trillion debt.

The Republican-led House has said it won’t raise the debt ceiling — an odd concept since the Congress has already passed the bills that require funding — unless Democrats agree to punishing future budget cuts.

Biden says Republicans must agree to a “clean” debt ceiling increase raising the borrowing limit without conditions, with negotiations over spending to come later during budget talks.

Federal bean counters been using budgetary tweaks to stretch the cash on hand, but Treasury Secretary Janet Yellen says those gimmicks will run out in early June.

The stakes are high: the government needs to pay your Social Security checks, salaries for military service members and other government employees and myriad other pay outs that Americans take for granted.

But even more dangerous would be the effect on the economy as a whole if the government were to fail to pay interest on Treasury bonds, normally considered one of the world’s safest haven investments because they are guaranteed by the “full faith and credit” of the U.S.

Biden met Tuesday with the four leaders of both major parties in the Senate and House of Representatives. But the main man on the other side is McCarthy, who controls the House and has the power to approve the raise the debt ceiling.

Both sides have downplayed any hopes of a breakthrough.

The White House says Congress has an obligation to raise the debt ceiling as it has done dozens of times before under leadership of both parties.

Biden wants the Republican-led House to increase the limit by at least enough to fund the government’s expected obligations till the end of 2024, effectively taking the chance of default off the table for the current political season.

The president and his Democratic allies say they are willing to talk about possible spending cuts later as they negotiate on the coming budget plan, a gargantuan task in itself.

But they haven’t given specifics and insist that any negotiations should be separate from the debt ceiling debate. They would likely suggest increasing some taxes on the wealthy and corporations be part of any deal.

McCarthy insists that raising the debt ceiling without also agreeing to draconian spending cuts amounts to America maxing out its national credit card.

The GOP says the purpose of the debt ceiling is to rein in the spendthrift impulses of lawmakers and raising it should be tied with the nation living within its means.

McCarthy gained some leverage in the stand-off by narrowly winning passage of a bill that effectively represents the GOP negotiating stance.

It calls for raising the debt ceiling by a modest amount expected to put off the crisis till next year (although not till after the presidential election) in exchange for harsh spending cuts and a grab bag of far right-wing policy prescriptions.

Economists differ about the specific impacts but the list includes instantly plunging the U.S. into a recession, widespread job losses and soaring interest rates.

The longer term impact on the global economy is more difficult to assess, especially without knowing how long the crisis might drag on and how other key economic players react to it.

The bottom line: it ain’t gonna be pretty.

Republicans could agree to raise the debt ceiling while Biden and Democrats could agree to some kind of spending cuts or a framework for limiting further debt increases.

It would be hard but not impossible to figure out a way to do the two things separately while both sides get some of what they want.

Congress has the authority to spend money on behalf of the government. It also has authority to borrow money to pay for the bills it has passed.

In the mid-20th century, Congress consolidated various methods of raising money into a single debt limit which it has regularly raised ever since.

For decades, the issue was a non-event. After all, if lawmakers want to spend less money they can simply pass fewer spending bills or raise taxes.

But neither one of those options is popular. So in recent years, mostly conservative lawmakers have hit on the more PR-friendly tactic of resisting increasing the debt limit.

X Date in the name given to the deadline for the U.S. to avoid default. For better or worse, it’s next to impossible to predict exactly when it will arrive due to the complexity of the calculations involved.

The best estimate is shortly after June 1.

The current debt limit is $30 trillion, meaning the government isn’t supposed to pay any obligations once it hits that figure.

Needless to say, it’s not so simple to say exactly how much the government owes on any given day or how it should stop meeting its obligations.

The Treasury Department says the government has basically already hit the debt limit but that it is taking “extraordinary measures” to stretch out its cash on hand for as long as it can.

Tax revenues from incoming income tax payments are rolling in at a slower-than-expected rate, meaning X Day is coming sooner than expected.

The 14th Amendment of the Constitution says debts incurred by the government “shall not be questioned.”

Some legal scholars believe that effectively makes the debt limit itself unconstitutional because it limits the government’s ability to meet obligations it has already made.

Harvard Law Professor Lawrence Tribe this week backed this theory.

If Biden were to invoke the 14th Amendment, he could theoretically order the U.S. to make payments to creditors and beneficiaries without Congress explicitly raising the debt limit.

That would certainly lead to lawsuits and it’s anyone’s guess how the conservative Supreme Court might rule.

Another off-beat idea would be for the Treasury to mint a platinum coin valued at $1 trillion and give it to the Federal Reserve to pay off debts.