By Chris Adams

One of the most arcane functions of U.S. fiscal policy is also one of the most important: The ability of the federal government to pay its debts in a timely manner without exceeding the so-called “debt ceiling.”

Because factions within Congress regularly threaten to exceed the nation’s limit on how much it can borrow, Congress has for the last several years had recurring debt ceiling debates.

In a session with NPF Paul Miller fellows, Shai Akabas (bio, Twitter) of the Bipartisan Policy Center explained the history and the mechanics of the nation’s debt ceiling.

In reality, Akabas said, the debate itself over whether to violate the debt ceiling is having a negative impact on financial markets. Since investors can never know for certain whether the U.S. ultimately will honor all of its debts, they are more leery than they otherwise would be about whether the United States actually stands behind the debts it owes.

In 2011, amid a major congressional debate over the debt ceiling, the ratings agency Standard & Poor’s actually downgraded the U.S. credit rating for the first time in history.

Akabas explained the “X date” that is calculated to project when the U.S. will actually run out money to pay its bills, as well as the “extraordinary measures” that can be taken to buy the country a little extra time to do so. (An example of those measures would be to finagle the timing of purchases in the Thrift Savings Plan, the retirement plan for federal employees.)

He also explained the politics of the debt ceiling, and why some members of Congress flirt with the idea of exceeding it. But since the big debate in 2011, Akabas said, Washington has taken the issue seriously and congressional leaders generally know that reneging on the country’s fiscal word would be a serious and unprecedented action.