The United States today hit its $14.3 trillion congressionally-mandated borrowing limit and the federal government is running on fumes.
While the treasury says it can continue funding Uncle Sam's $3.8 trillion annual spending spree by tapping into what is effectively an emergency credit card -- borrowing from government worker retirement funds and cutting off federally-backed state and local bond programs -- many people are wondering what, if any, impact not extending the debt limit might have as the May 16 deadline comes and goes.
Members of ABC News' economic panel said Wall Street and our foreign creditors have bought into Treasury Secretary Tim Geithner's promise that "extraordinary measures" to keep the government funded will work and the ongoing budget talks between the White House and Congressional Republicans will be productive.
Panelists said there likely will be few economic effects seen next week, with much more dire predictions offered up should a deal on the debt limit and budget not be completed in the next few months.
"Treasury has a lot of wiggle room in terms of shuffling money and delaying payments," said Dean Baker, co-director of the Center for Economic and Policy Research. "At some point it will run out, but I don't doubt that they can get at least until August and quite possibly much later."
The high-stakes political negotiations will require politicians to reach a deal to bring the nation's long-term debt down by trillions of dollars during the next decade. But tying a budget deal to the short-term need to borrow to fund the government and pay the interest on existing debt is a risky proposition.
"My sense is that if the debt ceiling were not raised, the stock market would react much like it did when Congress failed to pass TARP the first time and plunge, and interest rates would surge," said Mark Zandi, chief economist at Moody's Analytics. "The economy would quickly devolve back into recession."
At this point, the market seems to believe that Washington is capable of reaching a deal. Interest rates on government borrowing have not increased in recent months, indicating that investors do not believe it is likely that the U.S. will default. But, economists said, that could change quickly if negotiations break down or we do not have signs of a deal by mid-summer.
"The real worry is market perception," said David Wyss, chief economist at Standard & Poor's. "At this point, [the market] thinks this is just a game and no one could be stupid enough to force a default. They haven't met enough politicians."
While Vice President Joe Biden and Congressional Republicans will continue a series of budget negotiations in the coming weeks, members of the House Tea Party Caucus say they will not vote to support a deal that would expand the government's credit limits. Members say doing nothing would fulfill their campaign promises to stop deficit spending and force automatic cuts in federal spending.
A new Gallup poll suggests the "do nothing" option has support from Republican voters, with 70 percent saying they want their member of Congress to oppose a debt limit increase. Just 8 percent of Republican voters support an expansion.
Among Americans as a whole, 47 percent say they want to do nothing, 19 percent say they support an increase and 34 percent don't know enough to have an opinion.
Those kinds of middling poll numbers are making it politically difficult to support a credit limit deal.
"No one wants to deal with this and would like to 'kick the can down the road' yet again and hope to get re-elected before it blows up," said Bill Dunkelberg, chief economist at the National Federation of Independent Businesses.
Those opposing an expansion of the credit limit have cast aside the warnings from Treasury Secretary Geithner of "catastrophic economic consequences."
"A broad range of government payments would have to be stopped, limited or delayed, including military salaries, Social Security and Medicare payments, interest on debt, unemployment benefits and tax refunds," wrote Geithner in a letter to Congressional leaders on May 2.
It's that interest on the debt which has most economists worried. The "full faith and credit" of the United States has been an unquestioned cornerstone for global finance -- leading U.S. Treasuries to be a safe haven in times of trouble because Uncle Sam has never missed a payment.
The risks are high enough that 62 business groups sent congressional leaders a plea to address the debt limit.
"Raising the statutory debt limit is critical to ensuring global investors' confidence in the creditworthiness of the United States," said the letter signed by the Business Roundtable, National Retail Federation and U.S. Chamber of Commerce, among others. "With economic growth slowly picking up, we cannot afford to jeopardize that growth with the massive spike in borrowing costs that would result if we defaulted on our obligations."
The stakes, while disputed by the Tea Party, are so high that most economists believe there will be action before the U.S. misses any debt payments.
"We have faced debt limits before and have yet to default," said Martin Regalia, chief economist for the U.S. Chamber of Commerce. "As we approach the limit, we may start to see some increases in interest rates and or declines in the dollar, but I do not think that such movements will be large, unless the debt limit was reached and a default occurred."
Should default occur, it is those higher interest rates that would likely have the biggest economic impact. Like a consumer who misses a credit card payment, Uncle Sam would see his borrowing rates increase substantially as buyers of government bonds priced-in the possibility that they wouldn't be repaid.
That could lead to trillions of dollars in extra interest costs in the coming decades and broader economic effects for consumers.
"If there is not a compromise by the August deadline, the result would be a slowdown in government operations which would negatively affect economic growth," said John Silvia, chief economist at Wells Fargo. "In addition, there would be increased uncertainty premiums, slower capital goods orders in the manufacturing sector, and a slower pace of employment growth. The effect would be felt in several parts of the U.S. economy."
The troubled housing market would be directly affected, as mortgage rate increases are highly correlated to the government's cost to borrow money.
"The problem is we will need political discipline to prevent increasing costs of borrowing in the coming years," said Susan Wachter, professor at The Wharton School. "And the housing market will be fragile and potentially endangered by an interest rate shock for several years to come. We will need confidence, investor confidence, to help recovery in the housing market and the overall economy to get back on track."
The next several weeks will be critical to the debate over the debt limit and budget deal. It is possible the markets will start to react depending on Washington's ability to make real headway on some of the most difficult fiscal problems it has ever faced.
"Everybody in Washington still seems content to feed the American public's desire for instant gratification," said Diane Swonk, chief economist at Mesirow Financial. "Entitlements are not insurmountable but will need to be cut and taxes will have to be raised if we hope to keep the bulk of the Americans who need [Social Security, Medicare and Medicaid] from rioting."