The U.S. has hit the debt limit. Now what?

A political battle is brewing on Capitol Hill with potentially dire economic consequences looming after the U.S. hit the debt limit on Thursday. Lawmakers must reach an agreement to either raise or suspend the debt limit to avoid a credit default, which would mean the government couldn't pay its bills and would default on its debt obligations for the first time ever.

Raising the debt limit would increase the amount the U.S. can borrow to meet its spending obligations. Suspending the debt limit means Congress freezes it until a specific date and then, as the Committee for a Responsible Federal Budget puts it, "sets an automatic catch-up," so that when that date arrives, the debt ceiling is raised to meet the current level of spending. For instance, the Bipartisan Budget Act of 2019 suspended the debt limit until July 31, 2021, and provided a "catch-up" that raised the debt limit by $6.5 trillion.

The Treasury Department on Thursday started using so-called extraordinary measures to pay the bills, which Treasury Secretary Janet Yellen predicts can delay default for a few months, until around June.