Eliminating the federal debt ceiling, as President-elect Donald Trump advocated Thursday, would please Democrats and many budget experts, many of whom have long said that it serves no purpose and only invites chaos. 

Yet it would be rued by small-government conservatives, who have long maintained that the debt ceiling helps restrain spending. They argue that negotiations to raise the debt ceiling have provided some of the few historical instances in which Congress has been forced to reach deals to cut the deficit. 

The past decade-plus has seen a number of showdowns in Congress over raising the debt ceiling, with negotiations going right up to the verge of the government missing a payment on the debt. Another such confrontation could be in store for next year — or in 2027 if Congress embraces the plan that Trump endorsed later Thursday afternoon.

Here’s what to know. 

What is the debt ceiling? 

The federal debt ceiling places a limit on the total debt issued by the Treasury. 

Usually, the debt ceiling is a specific number. Currently, though, the ceiling is suspended until Jan. 1, thanks to a deal reached by congressional negotiators last year. The debt subject to the limit is just above $36 trillion. 

When the debt ceiling is not suspended, the Treasury cannot issue new debt — Treasury bills, notes, and bonds — in excess of the ceiling. 

What happens if the debt ceiling is not raised? 

If the debt ceiling is not raised, the Treasury must pay incoming bills with cash it has on hand plus any revenues that flow into its coffers. 

The treasury secretary has some ability to move funds around government accounts to free up money to pay the government’s bills — what are referred to as “extraordinary measures.” The Treasury will be able to use such measures for months. 

At a certain point, though, if the debt ceiling is not raised, the Treasury won’t be able to pay all incoming bills on time and in full. In other words, it would default on an obligation. That point is sometimes referred to as the “x-date.” 

What happens if the Treasury can’t make all its payments? 

The Treasury pays bills in the order they come due. It’s not possible to predict what payments it might fail to make. In theory, it could be a payment to Social Security beneficiaries that goes unpaid. That could cause significant hardship for retirees. Or, it could be that a paycheck for government workers or the military fails to go out. That would lead to political strife. 

From a macroeconomic perspective, the worst-case scenario would be failing to make a payment on the debt. That’s because Treasury securities are the most important financial asset in the world. The perception that they are risk-free is critical to the workings of financial markets worldwide. It is thought that a default on a Treasury security would be catastrophic.

What’s the difference between a debt default and a government shutdown?

A default is when the government fails to make a payment it is obligated to make. Economists think that a default would be dire, and in particular that a failure to make payments on Treasury securities would trigger a financial crisis.

A government shutdown happens when Congress fails to appropriate money to keep federal agencies open and federal workers paid. Government shutdowns have happened somewhat frequently over the years, and the overall effect on the economy has been modest.

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Couldn’t the Treasury just continue paying the interest on Treasury securities?  

Some lawmakers have suggested that the Treasury could prioritize payments to ensure that the fallout was minimal. For instance, the Treasury could continue to make interest payments on the debt, while stiffing other claimants. Legislation has been introduced in Congress to require such prioritization. 

But all treasury secretaries have maintained that such prioritization wouldn’t be logistically feasible and that the only alternative to default is to raise the debt ceiling. 

It’s also worth noting that, in past instances in which Congress has come close to the x-date, investors have demanded higher interest rates on Treasury securities, to compensate for the higher perceived risk that they wouldn’t be paid. Any payment prioritization scheme would take place in the circumstances of soaring interest rates and market turbulence, making it much harder to carry out. 

Why can’t the government just cut spending instead of raising the debt ceiling? 

The debt ceiling does not limit spending. Basically, it only limits the Treasury from issuing debt to pay for spending that Congress already authorized. 

If Congress passed legislation to immediately cut spending or raise revenues such that the Treasury began running a surplus, the Treasury likely wouldn’t need to raise the debt ceiling in the first place.

What about workarounds, such as minting a trillion-dollar platinum coin? 

Some analysts have suggested loopholes for the Treasury to get around the debt ceiling. In past showdowns over the debt ceiling, presidents have entertained some of the suggestions, to varying degrees — but they’ve always been rejected in the end. 

One idea is to have the Treasury mint a platinum coin in a huge denomination and deposit it in its account at the Federal Reserve (the Treasury maintains an account at the Fed to execute its payments). The concept, which would essentially be a trick of accounting, arose because of a wrinkle in a law meant to facilitate the sale of collectible coins that allows for the minting of platinum coins in huge denominations. If the Treasury simply minted a trillion-dollar platinum coin, the thinking goes, it would have a trillion dollars more in cash with which to make payments, without having to issue more debt. 

Another suggestion is for the Treasury to roll over any debt to super-high premium bonds — an idea that would work because the debt ceiling only applies to the face value of bonds. The Treasury would issue bonds that have low face value but pay very high interest rates. Investors would pay extra for such securities, meaning that the Treasury would have more cash on hand even without issuing more debt that is subject to the limit. 

Another is for the president to simply declare that the debt ceiling is unconstitutional under the 14th Amendment. 

Such workarounds have been debated extensively in the press and among budget experts in the past decade-plus of debt ceiling standoffs. But no president has dared to use one. 

So why was the debt ceiling created in the first place, then? 

Congress, which has the constitutional authority to spend public funds and issue debt, created the debt ceiling in 1939 so that it wouldn’t have to pass legislation to authorize every debt auction by the Treasury. By allowing the Treasury to borrow up to a given limit, the Treasury had greater authority to issue and manage debt without Congress having to micromanage it. 

Before the debt ceiling, “anytime we wanted to issue more debt, Congress would have to pass a law,” said Bobby Kogan, senior director of federal budget policy at the Center for American Progress, a liberal think tank in Washington. 

Over time, though, the limit has morphed from giving the Treasury more leeway to manage the debt to limiting the Treasury’s ability to issue added debt. 

What’s the case for getting rid of the debt ceiling? 

Trump likely wants the debt ceiling eliminated because it can be used as a tool by the minority in Congress to extract concessions from the majority. If Democratic votes are needed to raise the debt ceiling, they could threaten to withhold their assent unless Trump caves to certain demands. 

Democrats in recent years have moved toward favoring the abolishment of the debt ceiling, in large part because Republicans have demanded major changes under Democratic presidents in exchange for votes to raise the debt ceiling. 

Many budget experts are skeptical of the debt ceiling. They’ve noted that past standoffs over raising the debt ceiling have led to higher borrowing costs, because interest rates have risen amid fear that a debt payment might be late. Many have also concluded that the debt ceiling has led to chaos and political dysfunction without improving the fiscal situation. 

“On one hand you have a bunch of laws saying you must incur debt, and on the other hand you have a law saying it is illegal to incur that debt, and that’s why the debt limit isn’t a good thing,” Kogan said. “The way to change our fiscal trajectory is to go change our spending and tax law — that’s what we should do.”

He said that Republicans have inappropriately used the threat of a default as “fundamental leverage” against Democrats. 

What’s the case for keeping the debt ceiling? 

Some fiscal conservatives defend the debt ceiling on the grounds that debt ceiling votes historically have gone along with deals to cut deficits. In other words, they see the debt ceiling, whatever its flaws in theories, as a sort of fiscal juncture that forces Congress to turn off the autopilot and reckon with the federal debt. 

For example, enactment of the Gramm-Rudman-Hollings Balanced Budget Act, which set up a budgetary process for spending cuts in certain situations, was tied to an increase in the debt ceiling in 1985. 

More recently, a debt ceiling standoff between congressional Republicans and then-President Barack Obama resulted in the Budget Control Act of 2011, which created a set of complicated mechanisms meant to impose fiscal restraint, including automatic budget sequestration and the budget “supercommittee.” 

Some fiscal conservatives argue that such measures helped lower spending, relative to what it would otherwise have been. Yet it’s also true that future congresses have increased spending, and the government’s fiscal situation is worse now than it was in the 1980s or 2010s. 

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Romina Boccia, director of budget and entitlement policy at the libertarian Cato Institute, told the Washington Examiner that while the debt ceiling is “a pretty blunt tool” that “hasn’t worked as intended,” simply repealing it with no replacement would be a bad idea.

“The value that the debt limit brings is that it actually creates a fiscal deadline that is focused on the debt, which allows us to talk about what’s driving the growth in the debt, why that is unsustainable, and what kind of proposals we would need for Congress to adopt in order to stabilize the growth in the debt so it doesn’t ruin our country’s economy and drive us into a fiscal crisis,” she said.