Image source, Getty ImagesImage caption, US lawmakers are running out the clock in a standoff over how much money the government can borrow

US lawmakers are once again locked in a dangerous game of brinkmanship over lifting the debt ceiling – a limit on how much the US government can borrow.

Treasury Secretary Janet Yellen warned Congress last week that the country will reach its ceiling by 18 October, which is less than two weeks away.

Republicans are daring Democrats to resolve the conflict alone, but Democrats say they are being reckless.

The showdown has prompted fears of a default on the national debt.

A default is unlikely and has never happened in US history but would have catastrophic implications for the US and the global economy.

Impasses over the debt ceiling are not new in Washington politics, but amid a sluggish economic recovery from the ongoing Covid-19 pandemic, expect many jitters in financial markets as the deadline approaches.

Here's what you need to know.

What is the debt ceiling?

The US government spends more money than it collects in taxes, so it borrows to make up for the shortfall.

Borrowing is done via the US Treasury, through the issuing of bonds. US government bonds are seen as among the world's safest and most reliable investments.

In 1939, Congress established an aggregate limit or "ceiling" on how much debt the government can accumulate.

The ceiling has been lifted on more than 100 occasions to allow the government to borrow more. Congress often acts on it in a bipartisan manner and it is rarely the subject of a political standoff.

As the country has become more bitterly partisan, however, lawmakers have used the debt ceiling vote as leverage against other issues.

In a 2013 standoff, the last time the US was in serious danger of going over a "debt cliff", Republicans put up a blockade over the spending plans of President Barack Obama, a Democrat.

Image source, Getty ImagesImage caption, President Barack Obama negotiated intensely with Republicans to end a standoff over the debt ceiling in 2013

But, if history is any guide, lawmakers typically back down at the eleventh hour.

What happens if the debt ceiling is not raised?

For the first time ever, sometime in the second half of October, the US would default on its debts – which currently stand at around $28tn (£21tn).

Such an event would cause delays or bring service adjustments to every single government programme currently available, while also affecting federal funding for individual states.

A Goldman Sachs report has estimated the US Treasury may need to halt more than 40% of expected payments and financial aid to US households.

The Pentagon released a statement on Wednesday expressing concern that service members too may not be paid in full or on time.

Default may also trigger a spike in interest rates and ruin America's creditworthiness, making the US a more expensive place to live and damaging the economy. It would also bring turmoil to the stock market.

In a Wall Street Journal opinion piece last month, Secretary Yellen warned of "a historic financial crisis" that would leave the US "permanently weaker" if the debt ceiling was not raised.

Not raising – or temporarily suspending – the debt ceiling also threatens the health of the global economy, which would compound the impacts of the ongoing once-in-a-century public health crisis.

Investors around the world may sell off US assets and become less trusting of the US dollar, which has functioned as the world's reserve currency for decades.

The International Monetary Fund (IMF) has called for an end to Washington's "counterproductive brinkmanship" over the debt ceiling. It also suggested the cap should be replaced with an alternative financial mechanism.

What are Democrats saying?

On Monday, President Joe Biden condemned what he called "hypocritical, dangerous and disgraceful" Republican opposition.

Mr Biden said it amounts to "playing Russian Roulette with the economy".

There are 50 Democrats in the Senate, but in order to pass a measure on the debt ceiling without changing Senate rules, they require at least 10 Republican votes.

Democrats have pointed out that raising the debt ceiling is about paying off existing obligations rather than paying for new ones, and that Mr Biden's policies have only contributed to 3% of existing debts.

Image source, Getty ImagesImage caption, Treasury Secretary Janet Yellen, seen here with the top Democrats in Congress, has warned of a "historic financial crisis" if the US defaults on its debts

They also note that, during Mr Biden's predecessor Donald Trump's term, they joined with Republicans to raise the debt ceiling three times.

What are Republicans saying?

Senate Republicans have said raising the debt limit is the "sole responsibility" of Democrats because they hold power in the White House and both chambers of Congress.

They are frustrated by new spending proposals that Democrats are trying to push through without Republican support, through a procedural tool called "budget reconciliation".

Minority Leader Mitch McConnell tweeted last month that his party "will not facilitate another reckless, partisan taxing and spending spree".

Mr McConnell and other party leaders contend that if Democrats can use reconciliation to achieve their economic policy goals, they can also use it to take action on the debt ceiling.

Democrats have expressed concern over using reconciliation, saying it is too complex and time-consuming a route to take.

But two attempts to vote on the debt limit have already failed in the Senate and the deadline set out by Ms Yellen is fast approaching.

How might this get resolved?

Amid this week's negotiations, Senator McConnell has proposed two possible options.

He has said Republicans may be willing to come along with Democrats on raising the debt ceiling temporarily through December.

Alternatively, he offered an expedited reconciliation process, in which Republicans would agree to limit floor debate and amendments in order to shepherd the legislation through the Senate quicker.

Democratic leaders had previously indicated that using the tool of reconciliation would not be palatable to them, as it would create dual tracks of legislation – to raise the debt limit and to separately pass the Democrats' social spending bill.

But they have delayed a third attempt to bring up the debt ceiling measure through regular order in the Senate so that the party can contemplate Mr McConnell's offer.