If Congress misses the deadline for raising the country's borrowing limit, the Treasury Department may start playing catch-up on the nation's bills.
Since the end of 2012, when the federal government hit the $16.4 trillion legal limit on its borrowing, Treasury has been using "extraordinary measures" to pay the country's bills. But it will exhaust those tools sometime between mid-February and March 1. If there is no debt-ceiling increase, the federal government will start owing more money than it collects each day. The results would be messy and would grow messier each day that the saga dragged on.
The last time the nation faced this threat, in the summer of 2011, Treasury's staff felt that delaying payments was the "least harmful" of the "very bad options," according to a Treasury inspector general's report. The department would pay the first day's bills only once it collected enough to pay them all. Under such a plan, however, the delayed payments would cascade, increasing exponentially.
"Because the U.S. operates at a deficit, payment delays under such a regime would have quickly worsened each day the debt limit remained at its limit, potentially causing great hardships to millions of Americans and harm to the economy," the inspector general wrote in his report on the 2011 debt-ceiling fight.
On Wednesday, the Bipartisan Policy Center think tank sketched out what this could look like. If the country reaches the debt ceiling on Feb. 15, the first day in the BPC's prediction, the bills owed that day would be delayed by five days. The seventh day's bills would be delayed by a week. By day 15, money owed would take half-a-month to be paid out.
It may not sound terrible, but the consequences could be severe, the BPC explains:
"Both the first- and second-order effects of such a delay would be very tangible: A senior who depends on Social Security benefits and has no other source of income might be unable to pay rent when due; a physician who treats many Medicare and Medicaid patients may be unable to meet payroll for nurses and administrative staff; a small government contractor may be unable to pay a subcontractor on time; a family depending on its tax refund to make a credit-card payment might incur a substantial interest expense; and a member of the military whose paycheck is delayed might miss a mortgage payment, incurring penalties."
Treasury officials have not spoken in public about options they would consider to manage the debt-ceiling problem, but staff told the inspector general that in 2011 they viewed delaying payments as the best of the terrible options.