US debt ceiling: Q&A - Telegraph Technically, the limit was reached in May, when the ceiling was raised to its current level, but the Treasury made a number of extraordinary measures to continue to service its debts and support the government. It is the benefits of these extraordinary measures that are set to run out on Thursday, according to Treasury Secretary Jack Lew. What happens if the US hits it? The Treasury's $30bn in reserves will allow it to make up for the differences between tax revenues and bills for a few days. But by the end of the month the US government will have to pay $6bn in debt repayments and interest, which is when the US is set to officially run out of money. It could run out of cash before then, depending on the unpredictable issue of how much tax the government collects over the next few days. If an increase in the debt limit has not been agreed by the time the money runs out, payments will have to be prioritised. The country could either default on its debt, or postpone welfare payments or other bills. Which is more likely? It is hard to tell. Defaulting on debt would be catastrophic, since trillions of dollars in capital flows are backed up by US bonds - a traditional safe haven. This could result in a credit crisis equal or worse to that seen during the financial crisis, so is obviously a nightmare scenario. However, delaying government contracts and welfare payments would not be hassle-free either, not to mention politically disastrous. Many payment systems are automated, and companies with contracts could sue if payments were delayed. The economic effects of either situation are best avoided, to say the least. The Republican-controlled House of Representatives has approved a bill to continue to use tax revenues to service debt at the expense of other obligations, but President Obama would be likely to veto this even in the unlikely event that the Senate passes it. As with talks on raising the ceiling itself, politicians cannot agree. What is going to happen? Markets haven't panicked yet, appearing confident that a deal will be agreed, and the S&P 500 has actually risen in the last week, suggesting that experts believe Washington will come to some sort of a deal. Talks have continued almost non-stop over the last few days, but no consensus has been reached between Republicans and Democrats. The Democrat-controlled Senate took over talks last night, but made no progress, and negotiations set to continue on Wednesday afternoon. President Obama has said he believes a deal will be reached, and both sides have talked about progress being made towards raising the debt ceiling - if only enough to continue borrowing for another few months. Republicans are looking to make slight changes to Obamacare, the President's flagship healthcare reforms, although these changes have been watered down from the initial proposals to delay them for a year.