The Treasury has been up against the debt ceiling since May 19. But Secretary Jack Lew warned last week that his ability to create headroom under the $16.7 trillion limit will run out in mid-October. The threat facing the Treasury, and the nation, is what happens then if Congress doesn’t raise the limit.
In the worst-case scenario, the government fails to make payments on the interest on its debt, an outcome that could create a global financial crisis.
Yet Congress is not close to lifting the limit. With just a few weeks to go, House Speaker John Boehner, R-Ohio, is demanding spending cuts in return for the House voting to raise the ceiling, while President Obama is saying he won’t negotiate over the government paying its debts.
What if Congress doesn’t raise the debt ceiling in time? The following is a stage-by-stage guide to the consequences that would unfold if the cap isn't raised. It is based on the last brush with the debt ceiling in 2011 as well as earlier episodes — the debt ceiling has been raised 78 times since 1960.
Extraordinary measures
The Treasury currently is paying all of the government’s bills without issuing new debt by engaging in what it calls “extraordinary measures.” By manipulating accounts and postponing scheduled intra-government transfers, the Treasury can eliminate the need to issue bonds to finance those needs, and instead use newly issued bonds to pay obligations as they come due, without adding to the level of debt.
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