Debt Ceiling Crisis Looms After Budget Deal

VIDEO: Federal budget battle settles but national debt clock continues to tick.
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After a government shutdown was avoided on Friday with a $38 billion trimming from the 2010 baseline budget, lawmakers have a new hurdle to overcome: passing an increase on the federal debt limit to avoid defaulting on interest payments on the national debt -- a battle that will be over not billions, but a trillion dollars.

The federal debt limit stands at $14.294 trillion. In order to keep the government functioning, this must be raised significantly by May 16 -- or "catastrophic" consequences will result, according to Treasury Secretary Tim Geithner.

He said that this week's financial crisis was "modest in comparison" to what is coming down the road.

Without action by Congress, a number of government programs will wind up halted, limited or delayed -- including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds.

"Default by the United States would precipitate a crisis worse than the one we just went through," Geithner said to a Senate Appropriations subcommittee. "It would force us of course to cut critical payments to our seniors and it would be a reckless, irresponsible act to this country."

"I find it inconceivable that the Congress would not act to increase the limit," he said.

In order to avoid a default on interest payments, Congress must expand the debt ceiling another trillion dollars. The nine most recent increases since 1997 have averaged $977 billion in borrowing authority.

According to Geithner, any default on payments by the United States will lead to much higher interest rates and borrowing costs for Americans, while resulting in declining home values and reduced retirement savings for people across America.

Some economists fear that a failure to act could push America deeper into recession then the crisis that began in 2008. It had been perceived to be "a recovery-ending event," by Ben Bernanke, the Federal Reserve chairman.

Raising the debt ceiling has become a hot-button issue on both sides of the aisle, with newly elected Republicans -- including several Tea Party members -- looking at the crisis as an opportunity to take a major stand on government spending.

Speaking on the Senate floor on Friday night, Senate Republican Leader Mitch McConnell made it clear that raising the nation's debt is the contentious issue for the party.

"The president's asked us to raise the debt ceiling and Senate Republicans and House Republicans -- and I hope many Democrats as well -- are going to say, Mr. President, in order to raise the debt ceiling, we need to do something significant about the debt," McConnell said.

One House Republican strategy to reduce the deficit, which was outlined last week by Budget Committee Chairman Paul Ryan, R-Wis., would be to cut taxes while reducing programs like Medicare, which would be replaced with a program that would force beneficiaries to purchase private insurance with government funds.

Meanwhile, President Obama will be outlining a long-term plan for the deficit on Wednesday, according to an update this morning on White House Communications Director Dan Pfeiffer's Twitter account.

But from the way House Republicans are speaking, the battle this week was just a preview of the struggles to come.

Rep. Adam Kinzinger, R-Ill., said that the time for changes has come.

"If they want to ask us to raise the debt ceiling, we are going to see some fundamental restructuring at how we do business," he said.

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