As the U.S. government is about to hit its so-called debt ceiling of $16.7 trillion on Oct. 17, the frightening prospect of the world’s biggest economy running out of cash is dominating headlines around the globe.

The U.S. debt ceiling has existed for almost a century, and describes the maximum amount of money the U.S can legally borrow. The country introduced the legislative limit on its debt back in 1917, and since then it has stipulated the affordable amount of national debt that can be issued by the U.S. Treasury. As of September 25, the US Treasury reported federal government debt at just shy of $16.7 trillion ($16,699,396,000,000.00, to be exact) in its daily statement, a figure which has been reported for 130 days straight. This is about $25 billion shy of the precise legal limit – $16,699,421,095,673.60. When the US approaches this debt limit, it can take some “extraordinary measures” to buy some time before Congress agrees to raise the ceiling. In its entire history, the U.S. has so far never reached the point of default, where Treasury can’t pay its debt obligations.

The U.S. owes about two-thirds of its debt to US-based creditors, with almost 66 percent of the country’s debt held domestically. U.S. individuals and financial institutions hold around 31.7 percent of U.S. Treasuries, with the U.S. central bank, the Federal Reserve, which holds some 12 percent of the debt. Foreign creditors, including China and Japan, own an estimated 34 percent of total US government debt. These two ‘big lender’ countries have recently urged the U.S. to take decisive steps to avoid a default.

In the US, often referred to as a ‘big-spending’ country, both individuals and the government have habitually spent more than they earn, pushing the economy deeper into debt.

“Just like any ordinary individual, the choice is either to cut back on spending or to borrow money to bridge the gap,” Moscow financial expert Chris Weafer, a senior partner at Macro-Advisory.com.

In 2012, 22 percent of total government expenditures went to social security (means-tested payments to the poor and unemployed), while 21 percent was spent on healthcare, again mostly for poor Americans who cannot afford private health insurance. The third largest expenditure item is defense at 19 percent. In recent decades, the US defense bill has ballooned, mainly due to costly wars in Iraq, Afghanistan and elsewhere. The so-called War on Terror has also added greatly to the debt burden, while the Department of Homeland Security, created after the September 11, 2001, attacks on the US, has cost taxpayers more than a cumulative $800 billion.

The biggest contributory factor to the fast-growing debt mountain in recent years, however, has been the economic crisis that began in 2008. Apart from hundreds of billions of dollars paid out to rescue failing Wall Street banks that had made too many toxic loans, the U.S. government has also paid out large amounts on vital social programs to aid the growing ‘army of the unemployed’. Coupled with the Bush-era tax cuts to the rich and big business, lower average incomes and greater unemployment have hit government tax revenues hard, sending federal government debt sky-high.

If the U.S. defaulted, then the world’s financial system “would start to freeze up,” Weafer says. “Banks would pull back from risk and lending. The U.S. economy would slide towards recession and the global economy would quickly be affected.” A prolonged U.S. default would lead to job losses everywhere and much tougher borrowing conditions for companies and individuals, he adds.

“A short period of default would also have a bad effect in that it would hurt confidence in the world’s financial system,” he says. “Bankers and investors would assume that a short-term fix in the U.S. would mean it would only be a matter of time before the same issue arises again in 2014. The resulting caution would make life that much tougher for all of us.”