WASHINGTON (AP) - Here's the scariest thing about the looming deadline to raise the U.S. government's borrowing limit: No one knows precisely what will happen if the limit is breached.
It's never happened before.
The possible consequences are dizzyingly complex. But they're all bad. Most ominously, the government might fail to make interest payments on its debt. Any missed payment would trigger a default.
Financial markets would sink. Banks would slash lending. Social Security checks would be delayed. Eventually, the economy would almost surely slip into another financial crisis and recession.
Even if the government managed to make its interest payments, fears about a default would likely cause investors to dump Treasurys and send U.S. borrowing rates soaring.
The financial world is holding out hope that that grim scenario will compel Congress to raise the debt limit and avert a default. Here are questions and answers about the government's borrowing limit:
Q. What exactly is it?
A. The borrowing limit is a cap on how much debt the government can accumulate to pay its bills. The government must constantly borrow because its spending has long exceeded its revenue. The first borrowing limit was enacted in 1917. Since 1962, Congress has raised the borrowing limit 77 times. It now stands at $16.7 trillion.
Q. How close are we to the limit?
A. The national debt actually reached the limit in May. Since then, Treasury Secretary Jacob Lew has made accounting moves to continue financing the government without further borrowing. But Lew says those measures will be exhausted by Oct. 17. The government will then have to pay all its bills from its cash on hand -- an estimated $30 billion -- and tax revenue. The cash and tax revenue aren't expected to be enough. Lew has said the government's daily spending can run as high as $60 billion.
Q. What happens after Oct. 17?
A. The government could pay all its bills for a few days, according to the nonpartisan Congressional Budget Office. But sometime between Oct. 22 and Oct. 31, the cash would run out. The date isn't exact because it's impossible to foresee precisely how much revenue the government will receive and when.
Q. What would the Treasury Department do then?
A. Many experts think that to avoid a default, Treasury would make payments on the debt its top priority. The House has approved a bill to require such "prioritization." The Senate hasn't passed it, though. And President Barack Obama has threatened to veto it.
In any case, making some payments and not others is harder than it might sound. Treasury makes roughly 100 million payments a month, and nearly all are automated. Without any cash in reserve, even a minor glitch could cause Treasury to miss a debt payment and default.
"Treasury would do everything in their power to not miss a debt payment," says Donald Marron, an economist at the Urban Institute and a former economic adviser to President George W. Bush. "But when you're in untested waters under a great deal of stress, bad things happen."
There are legal and political obstacles, too. The government is legally obligated to pay contractors. If not, the contractors could sue for non-payment. And how long would members of Congress stand by as bondholders in China and Japan were paid interest, while Social Security and veterans' benefits were delayed?
Treasury officials looked into such prioritization during the last showdown over the borrowing limit in 2011. Their conclusion: "There is no fair or sensible way to pick and choose among the many bills that come due every day," according to a report by Treasury's inspector general.
Q. What else could Treasury do?
A. It could make its interest payments first -- then delay all other payments until it collects enough tax revenue to make a full day's payments. That would avoid choosing among competing obligations.
But that would lead most other payments to be delayed. Example: Social Security benefit payments worth about $12 billion, scheduled to be paid Oct. 23, would be delayed for two days, according to an estimate by the Bipartisan Policy Center. Tax refunds slated for Oct. 24 would probably be delayed until Oct. 28.
And on Nov. 1, nearly $60 billion in Social Security benefits, Medicare payments and military paychecks are due. With no increase in the borrowing limit, those payments would likely be delayed, possibly for up to two weeks.
Q. Would that avoid a default?
A. Impossible to say. One problem is that the government would likely have to pay higher interest on new debt. Consider: On Oct. 24, the government must redeem $93 billion in short-term debt. Normally, it sells new debt to pay off old debt. This step doesn't increase total debt, so it would still be allowed even if the borrowing limit wasn't raised. Yet given the risk of a default, investors would demand higher rates on new U.S. debt. Short of cash, the government might be unable to pay off its maturing debt. The result: a default.
Q. Could the president