So if the US really hits the debt ceiling, then what?

What would really happen if the US government hit the debt ceiling? We ask that question because there’s a lot of discussion in Washington about debt ceiling politics – who’s got leverage, who’s bluffing, who isn’t, and so forth – but much less talk about what the debt ceiling actually is.

And the phrase “debt ceiling” sounds final in an ominous sort of way. If Uncle Sam reaches this limit in late February, as now seems likely, would the federal government grind to a halt for want of cash?

Not entirely. Hitting the debt ceiling is not the same thing as shutting down the government by failure to appropriate funds. In that sense it would be a fiscal crisis wholly different from the Bill Clinton-Newt Gingrich budget fights of the mid-1990s.

In fact, it would be so different nobody actually knows what it would be like. It would be uncharted territory, tabula rasa, beyond the horizon there be dragons.

Some conservative fiscal experts say it wouldn’t be so bad – the US could shuffle through its bills, pay off the important ones, and muddle through like a home-builder with a cash-flow problem.

But many economists worry it would be a disaster. Financial markets – unstable as an emotional teen in the best of times – could judge that the US is defaulting on its debt, and swoon accordingly.

“This could result in significant economic and financial consequences that may have a lasting impact on federal programs and the federal government’s ability to borrow in the future,” concludes a Jan. 4, 2013, Congressional Research Service debt limit report.

The heart of the debt limit problem is that the US government spends more money than it receives in tax revenue. (Yes, we know you’re shocked about that.) The Treasury Department covers the difference by borrowing cash.

Back in the dawn of the Republic, Congress used to vote to approve each new debt issue. That became tiresome, and by 1939 lawmakers had established a debt limit up to which Treasury could borrow without asking permission of Capitol Hill.

Today the debt limit is analogous to a limit on Treasury’s credit card. But unlike your credit card (hopefully) this involves debt the US is not paying off. Continued deficits mean Washington has to borrow more and more money. Accordingly, it keeps nearing its debt limit. Congress has voted to raise the debt limit 13 times since 2001.

Currently the debt limit stands at $16.4 trillion. Treasury officials say they’ve already borrowed that much money and they’re making ends meet at the moment through so-called “extraordinary measures.” (No, we don’t know what those are. But we’re pretty sure they don’t put “Social Security Trust Fund” and “Powerball” in the same sentence.)

Sometime in late February or early March the League of Extraordinary Measures will have exhausted its possibilities and the US will really wham up hard against the debt ceiling, says the Treasury. What then?

What happens then is that the government will still wake up and go to work the next day. But Treasury officials won’t be happy. They will have too many bills, and not enough cash to pay them. Right now the US borrows 40 cents out of every dollar it spends. You can get behind pretty quickly facing that sort of budget math.

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