What is the debt ceiling, and is Trump right that a default 'could mean nothing'?

President-elect Donald Trump on Wednesday shone a spotlight on the debt ceiling, rejecting a bipartisan government funding deal negotiated by House Speaker Mike Johnson and demanding lawmakers raise the debt ceiling as they fund the government.

But in a Thursday interview with ABC News' Jonathan Karl, Trump suggested the impact of the U.S. government defaulting on its bills could "possibly mean nothing."

"Nobody really knows. It means nothing, but psychologically, it may mean a lot, right? In other words, it doesn't have a real meaning other than you've violated something," Trump told Karl. "And that may be just, you know, one day, half a story, or it may lead to the depression of 1929, and nobody wants to take the chance, except the Democrats."

Despite Trump's suggestion, economic experts have said they agree that breaching the debt ceiling would certainly lead to economic chaos.

"It would be disastrous for the American economy, for global financial markets and for millions of families and workers whose financial security would be jeopardized by delayed payments," Treasury Secretary Janet Yellen warned lawmakers during a 2021 standoff over the debt ceiling.

Raising the debt ceiling, Yellen testified, is "necessary to avert a catastrophic event for our economy."

Here's a primer on the debt ceiling and examples of the possible consequences if the United States is unable to pay its debts.

What is the debt ceiling?

The debt ceiling is a cap on the amount of money the U.S. government can borrow to pay its debts.

Every year, Congress passes a budget that includes government spending on infrastructure, salaries for federal workers and programs such as Social Security. Congress also taxes people to pay for all that spending. But for years, the government has been spending more than it takes in from taxes and other revenue, increasing the federal deficit.

The government needs to borrow money to continue paying out what Congress has already approved, but the debt ceiling puts a limit on how much money the U.S. government can borrow to pay its bills.

What would happen if the US can no longer pay its bills?

If the government cannot borrow money to continue paying for programs, there will be real-world effects for millions of people. Here are some of the possible ones, according to the Treasury Department and the Committee for a Responsible Federal Budget, a nonpartisan organization.

• Millions of seniors could stop receiving Social Security payments or see delays.

• The United States' credit worthiness could be downgraded, spiking interest rates, which would raise mortgage, car and credit card payments

• Doubt in the typically reliable U.S. currency could tank the markets, hurting 401(k)s and other investments (The S&P 500 lost 17% in the months surrounding the 2011 debt ceiling standoff.)

• U.S. military service members could stop receiving paychecks

• Veterans' benefits could stop or be delayed

• Postal workers and federal employees could stop receiving paychecks

• Federal Emergency Management Agency funding for hurricane and wildfire victims could stop

• Child nutrition programs and other food assistance could stop

In 2023, Moody's Analytics estimated that a protracted breach of the debt ceiling would cause comparable effects to the 2008 economic crisis. It said it could cost the economy more than 7 million jobs and see stock prices fall by almost a fifth, wiping out $10 trillion in household debt.

Would this be worse than a government shutdown?

Yes. This is an even bigger deal than a government shutdown. A government shutdown occurs when Congress does not approve a new spending bill for the next fiscal year, so new payments, such as paychecks, are stopped. In 2019, around 800,000 federal employees were affected by a government shutdown, and markets dipped.

But the U.S. has never defaulted on its debt. Such an unprecedented situation would destabilize markets, spike interest rates and roil the economic system. Some payments that continue under government shutdowns, such the Social Security payments many seniors rely on as their income, could be stopped.

"Many more parties are not paid in a default," the Committee for a Responsible Federal Budget said. "Without enough money to pay its bills, any of the payments are at risk, including all government spending, mandatory payments, interest on our debt and payments to U.S. bondholders. While a government shutdown would be disruptive, a government default could be disastrous."

Since the debt ceiling system was instituted in 1917, Congress has never not raised the debt ceiling. Congress has voted 78 times to raise or suspend the debt limit since 1960.