US debt ceiling: What is it and how devastating would a default be?
Efforts to prevent the United States reaching its debt limit and to avert a potentially catastrophic default on loan repayments on Wednesday move to the House of Representatives, where the vote on the proposal to raise the debt ceiling takes place.
President Joe Biden and leader of the House of Representatives, speaker Kevin McCarthy, had spent the Monday memorial day holiday shoring up support among Democrats and Republicans respectively for the agreement.
The pair had agreed a plan on Saturday for the debt limit to increase and for spending caps and work requirements to be introduced. The agreement between the leaders must now gain approval of the two chambers of congress in less than a week before the default deadline is reached on Monday.
A single opposition vote could derail progress through congress and bring the US into its first ever default, with potentially disastrous consequences for the global economy.
What’s happening this week?
Members of the Republican majority House of Representatives are to vote on the proposed agreement on Wednesday. If approved, the proposal will move to the Democrat-controlled Senate on Friday.
But it first faces an uphill battle in the House as Republican representatives have already voiced their opposition.
Ten far right leaning House Republicans are expected to vote no, believing controls on spending in the agreement to be insufficient. Republicans generally seek to shrink, rather than expand, the country’s debt.
Some Democrats too are unhappy with the deal. The deal’s planned 3.3% increase in defence spending may lead to members of both parties seeking amendments to make sure military spending rises in line with inflation, which in the US is just below 5%.
Passage in the House on Wednesday is key to bringing the vote to the Senate on Friday.
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What’s in the debt ceiling deal?
The main purpose of the deal is to increase the US debt limit from $31.4trn (£25.3trn). The agreement does this by suspending the borrowing limit until January 2025 – after the next US presidential elections – rather than setting a new level.
Biden and the Democrats have made concessions to Republicans in the hopes they will back a deal. As Republicans are sceptical of government spending and seek smaller government, the deal promises spending cuts and policy concessions.
Quite how deep those spending cuts are depends on who you ask.
The White House is saying government spending would come down by $1trn, though official figures have not been released. The New York Times are reporting cuts of $136bn (£109.7bn) will be made.
Under the agreement, some social welfare recipients will be subject to new work requirements.
The bill would also end the student loan freeze Biden introduced and require former students to recommence payments.
It also revokes funding for the US tax collection authority, the IRS. Democrats had dedicated $80bn for the authority to hire more employees to boost tax enforcement, collecting more funds to implement state spending plans.
Ultimately the agreement is trying to stop a government shutdown. A deal is needed because any extension, or pause in the debt limit, needs the approval of congress.
Why does defaulting matter?
As the world’s largest economy has never before defaulted the exact consequences are uncertain but are likely to be catastrophic to the US and global economy.
The US would run out of money and no longer be able to pay its bills. Civil servant wages, social welfare payments, health insurance – known as Medicare – would go unpaid.
If the US no longer pays interest on its bonds, IOUs it issued to raise funds, it would default on debt payments.
The country’s credit rating would go down If it defaults on debt payments. A vital way the country raises money – selling bonds – could be at risk as markets will see US government debt as insecure and charge more to lend to the US.
Economic research organisation Moody’s Analytics said a prolonged period where US bills can’t be paid would lead to a nearly 20% drop in stock prices, economic contraction of 4% and the loss of more than seven million jobs.
The White House Council of Economic Advisers estimated the economy could shrink by as much as 6.1% after such a prolonged period.
Global shocks
The country would likely enter recession, which would harm the global economy as the US trades with so much of the world and is the bedrock of the worldwide financial system.
A fall in the value of US bonds would also harm economies across the world as investors could become concerned about other countries defaulting and seek to be paid more to lend to other nations.
US bonds and stocks are owned by pension funds across the world and with a drop in their values would come a drop in pension values.
US Treasury Secretary Janet Yellen
When could default happen?
To prevent default an agreement must be reached by Monday 5 June, which the US Treasury Secretary, Janet Yellen, set as the deadline to raise the debt ceiling beyond the current $31.4trn (£25.3) limit.
A date as early as 1 June had been thought to be the default date before the precise deadline was set by Ms Yellen.
Two people have been killed after a suspect shot at firefighters responding to a fire in the US state of Idaho, authorities have said.
Police were still “taking sniper fire” near the city of Coeur d’Alene on Sunday afternoon, the Kootenai County Sheriff’s Office said.
Crews were responding to a fire at Canfield Mountain around 1.30pm and gunshots were reported around half an hour later, the force said.
Pic: Reuters
Sheriff Bob Norris said officials believe the two killed were firefighters, and he did not know if anyone else was shot.
“We don’t know how many suspects are up there, and we don’t know how many casualties there are,” he said. “We are actively taking fire sniper as we speak.”
Mr Norris said the sniper appeared to be hiding in the rugged terrain and using a high-powered rifle, adding he had instructed his deputies to fire back.
“I’m hoping that somebody has a clear shot and is able to neutralise, because they’re not at this point in time showing any evidence of wanting to surrender,” the sheriff said.
Pic: Reuters
Governor Brad Little said “multiple” firefighters were attacked.
“This is a heinous direct assault on our brave firefighters,” he said on X. “I ask all Idahoans to pray for them and their families as we wait to learn more.”
The president of the International Association of Firefighters said a third firefighter was in surgery.
In a statement on social media Edward Kelly said the firefighters “were ambushed in a heinous act of violence”. He added: “Two of our brothers were killed by a sniper, and a third brother remains in surgery.”
The sheriff’s office in neighbouring Shoshone County said authorities were “dealing with an active shooter situation where the shooter is still at large”.
Smoke billows into the air after several firefighters were attacked while responding to a fire. Pic: Reuters
The fire was still raging, Mr Norris said.
“It’s going to keep burning,” he added. “Can’t put any resources on it right now.”
The FBI was sending technical teams and tactical support to the scene, its deputy director Dan Bongino said.
“It remains an active, and very dangerous scene,” he said on X.
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Canfield Mountain is a popular hiking and biking spot on the outskirts of Coeur d’Alene, a city of around 55,000 people in northern Idaho.
Donald Trump has said the US government has found a buyer for TikTok that he will reveal “in about two weeks”.
The president told Fox News “it’s a group of very wealthy people”, adding: “I think I’ll probably need China approval, I think President Xi will probably do it.”
TikTok was ordered last year to find a new owner for its US operation – or face a ban – after politicians said they feared sensitive data about Americans could be passed to the Chinese government.
The video app’s owner, Bytedance, has repeatedly denied such claims.
It originally had a deadline of 19 January to find a buyer – and many users were shocked when it “went dark” for a number of hours when that date came round, before later being restored.
However, President Trump has now extended the deadline several times.
The last extension was on 19 June, when the president signed another executive order pushing it back to 17 September.
Mr Trump’s latest comments suggest multiple people coming together to take control of the app in the US.
Among those rumoured to be potential buyers include YouTube superstar Mr Beast, US search engine startup Perplexity AI, and Kevin O’Leary – an investor from Shark Tank (the US version of Dragons’ Den).
Bytedance said in April that it was still talking to the US government, but there were “differences on many key issues”.
It’s believed the Chinese government will have to approve any agreement.
The president said the identity of the buyer would be disclosed in about two weeks. Pic: Fox News
President Trump’s interview with Fox News also touched on the upcoming end of the pause in US tariffs on imported goods.
On April 9, he granted a 90-day reprieve for countries threatened with a tariff of more than 10% in order to give them time to negotiate.
Deals have already been struck with some countries, including the UK.
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The president said he didn’t think he would need to push back the 9 July deadline and that letters would be sent out imminently stating what tariff each country would face.
“We’ll look at the deficit we have – or whatever it is with the country; we’ll look at how the country treats us – are they good, are they not so good. Some countries, we don’t care – we’ll just send a high number out,” he said.
“But we’re going to be sending letters out starting pretty soon. We don’t have to meet, we have all the numbers.”
The president announced the tariffs in April, arguing they were correcting an unfair trade relationship and would return lost prosperity to US industries such as car-making.
Iran will have the capacity to begin enriching uranium again in “a matter of months”, the UN’s nuclear watchdog boss has said.
Rafael Grossi, who heads the International Atomic Energy Agency (IAEA), said that US strikes on three sites a week ago had caused “severe damage” but it was not “total”.
Mr Grossi told CBS News: “The capacities they have are there. They can have, you know, in a matter of months, I would say, a few cascades of centrifuges spinning and producing enriched uranium, or less than that.
“But as I said, frankly speaking, one cannot claim that everything has disappeared and there is nothing there.”
Iran still has “industrial and technological capabilities… so if they so wish, they will be able to start doing this again”, he added.
A satellite overview shows excavators at tunnel entrances at the Fordow site in Iran. Pic: Maxar Technologies/Reuters
Iranian nuclear and military sites were attacked by Israel on 13 June, with the Israelis claiming Tehran was close to developing a nuclear weapon.
The US then carried out its own strikes on 22 June, hitting Iranian nuclear installations at Fordow, Natanz and Isfahan, under Operation Midnight Hammer.
Iran has insisted its nuclear research is for civilian energy production purposes.
US President Donald Trump said last weekend that the US deployment of 30,000lb “bunker-busting” bombs had “obliterated” Iran’s nuclear programme.
But that claim appeared to be contradicted by an initial assessment from the US Defence Intelligence Agency.
A source said Iran’s enriched uranium stocks had not been eliminated, and the country’s nuclear programme, much of which is buried deep underground, may have been put back only a month or two.
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Did the US destroy Iran’s nuclear sites?
Mr Trump has rejected any suggestion that the damage to the sites was not as profound as he has said.
And he stated he would consider bombing Iran again if Tehran was enriching uranium to worrying levels.
At a news conference on Thursday alongside US defence secretary Pete Hegseth, the chairman of the joint chiefs of staff General Dan Caine, told reporters the GBU-57 bunker buster bombs had been designed in some secrecy with exactly this sort of target in mind.
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US: Iran nuclear sites ‘obliterated’
The head of the CIA has also said a “body of credible intelligence” indicates Iran’s nuclear programme was “severely damaged”.
Director John Ratcliffe revealed that information from a “historically reliable and accurate source” suggests several key sites were destroyed – and will take years to rebuild.
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Meanwhile, Iran’s supreme leader Ayatollah Ali Khamenei said his country “slapped America in the face” by launching an attack on 23 June against a major US base in Qatar, adding the nation would never surrender.
The 12-day air conflict between Israel and Iran ended with a US-brokered ceasefire.
But the Iranian armed forces chief of staff, General Abdolrahim Mousavi, has said his country doubts Israel will maintain the truce.
A spokesman for Iran’s foreign ministry said the US strikes had caused significant damage to Tehran’s nuclear facilities.
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