The U.S. government hit the debt ceiling on May 16. It's a cap set by Congress on the amount of debt the federal government can legally borrow. Basically, our country borrows money from the public, in the form of bonds and from foreign governments using treasury notes, to pay our debts. If the government spends more than they take in, they must borrow to pay for those expenditures. The current debt ceiling is set by Congress at over $14 trillion.
The debt ceiling was enacted to control government spending, but has rarely achieved success. Lawmakers tacitly agree to raise the debt ceiling every time they vote for a spending hike or tax cut. Treasury Secretary Timothy Geithner told Congress he would have to suspend investments in federal retirement funds until Aug 2nd in order to create room for the government to continue borrowing in the debt markets. After Aug 2nd, the Treasury will not be allowed to borrow more without an increase in the debt ceiling.
The countries excellent credit rating could be damaged because the government would be forced to pay some bills and default on others. Example is that when I pay my mortgage on time and not my car payment, my credit rating would be damaged. Just like a personal credit rating, the government has a credit rating too, which if it is excellent, it attracts foreign investment and more money in the government coffers.
The President and leaders of Congress have held meetings to come to an agreement on raising the debt ceiling, but have failed thus far. If the deadline passes then they could either cut spending or raise taxes by several hundred billion dollars just to get through Sept. 30, which is the end of the fiscal year. Or they could acknowledge that the country would be unable to pay what it owes in full and the United States could effectively default on some of its obligations.
The first option would be impossible to execute without serious...