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

A debt ceiling breach would look different from a government shutdown in a number of ways and would come with much greater consequences for the economy than a shutdown, which the U.S. has been through numerous times in recent years.

“We know what a government shutdown looks like, we have been there before, it doesn’t look pretty but it also isn’t catastrophic,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center. “With the debt limit, it is totally uncharted territory and we could see ramifications that would affect every American household.” 

A government shutdown is triggered when Congress fails to pass legislation to fund the government. As a result, federal workers aren’t paid, nonessential workers stay home and certain services that receive federal funding, such as the National Parks, are closed. But mandatory programs, such as Medicare and Social Security, aren’t affected.

But in the case of a debt ceiling breach, all federal spending is affected, including Medicare payments, Social Security checks and veterans benefits. Federal workers would likely still be required to report to work, but may not get paid on time.

GOP senator threatens to impede debt ceiling deal

Sen. Mike Lee, R-Utah, appeared to threaten the chances of the Senate easily passing a debt ceiling deal between House Republicans and the White House if it falls short of “substantial spending and budgetary reforms” that he supports.

A speedy vote on any bill in the Senate requires all 100 senators to agree. Any one senator who votes against it can slow down the process, but not block it completely. If the House passes a deal in the hours before the looming June 1 deadline, it could take days to pass through the Senate.

Negotiators ‘worked until midnight,’ McCarthy says


Negotiators for the White House and congressional Republicans “worked until midnight last night,” to hammer out a deal to raise the debt ceiling, McCarthy said this morning.

He added that negotiations would continue today and that the two sides “are working to get it done.”

White House urges Congress to pass ‘reasonable’ bipartisan deal after Fitch warning

The White House called on Congress to quickly pass a reasonable debt limit deal last night after Fitch warned that it may downgrade the U.S. credit rating.

“This is one more piece of evidence that default is not an option and all responsible lawmakers understand that,” a White House spokesperson said in a statement shortly after the credit rating agency issued its warning. “It reinforces the need for Congress to quickly pass a reasonable, bipartisan agreement to prevent default.”

McCarthy says negotiators have ‘made some progress’ but snags remain

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Negotiators for the White House and congressional Republicans have “made some progress,” McCarthy said, but just days ahead of a potential default, issues remain.

Speaking Wednesday evening, McCarthy struck a more optimistic tone, saying “things are better” than they were the day before.

Still, negotiations were stalled on a “couple issues,” he said, adding that Rep. Patrick McHenry, R-N.C., had stayed at the White House to discuss a lingering issue. McCarthy said he does not have another meeting scheduled with Biden.

Treasury says Fitch warning highlights need for ‘swift bipartisan action’

The warning from Fitch emphasizes the need for “swift bipartisan action” from Congress, the Treasury Department said.

Treasury Secretary Janet Yellen “has warned for months, brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers, and threatens the credit rating of the United States,” Lily Adams, a department spokesperson, said in a statement last night.

The warning “underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy,” she added.

The credit rating agency put America’s AAA long-term foreign currency issuer default rating on negative watch last evening, citing “increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit.”

The move was not a downgrade, but a warning it could do so.

Fitch warning sparks fresh finger-pointing

Fitch’s warning that it could downgrade the U.S. credit rating if a deal can’t be reached to raise the debt limit set off alarm bells and a fresh round of finger-pointing in Washington overnight.

A Republican source close to McCarthy told NBC News this is why the speaker has been urging the White House to engage in negotiations since February.

Republican Rep. Don Bacon of Nebraska said the Fitch warning is a clear sign it’s time to get a deal, and said that Biden and McCarthy “need to meet in the middle.”

Meanwhile, a Democratic official familiar with the negotiations said that negotiations “are already making progress but this certainly reinforces the need for swift action.”

Former Obama officials who lived through a similar crisis over the debt limit in 2011 were blunter.

“It’s Bad,” one said of the Fitch warning. The official joined the administration shortly after the debt limit debacle but noted that at the time, it was a “low point” for then-President Barack Obama “when his approval ratings and Congress’ tanked.”

A second Obama official, who was in the White House during the 2011 debacle, said: “It underscores the real risk of creating a ton of economic turmoil that would be entirely self-inflicted.” That official said that while there will be plenty of political blame to go around if the nation defaults, there is also concern Democrats will “pay the price because we’re in charge.”

Moody’s and S&P, two other ratings agencies, had placed the U.S. on negative watch during debt ceiling talks in 2011. S&P followed through with the downgrade; Moody’s did not.

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