Debt limit: What you need to know

Here's the scariest thing about the deadline to raise the U.S. government's borrowing limit: No one knows what will happen if the limit is breached. It's never happened before. The possible consequences are dizzyingly complex. Here's a look:

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 borrows by issuing debt in the form of Treasurys, which investors buy. The government must borrow because its spending has long exceeded its revenue. Since 1962, Congress has raised the borrowing limit 77 times. It stands at $16.7 trillion.

Q: How close are we to the limit?

A: The national debt 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. But the government's daily spending can run as high as $60 billion, Lew said.

Q: What happens after Oct. 17?

A: The government could pay all its bills for a few days, said the nonpartisan Congressional Budget Office. But between Oct. 22 and Oct. 31, the $30 billion would run out.

A: A default would occur if the government fails to make a principal or interest payment on any of its Treasurys. A $6 billion interest payment is due Oct. 31. Many experts think that to avoid a default, the U.S. Treasury would make payments on the debt its top priority. But making some payments and not others is harder than it might sound. The department makes about 100 million payments a month. Nearly all are automated.

Without any cash in reserve, a minor glitch could cause the U.S. to miss a debt payment — and default. Even if the government managed to stay current on its debts, it would fall behind on other bills. These include Social Security benefits, employees' pay and payments to contractors.

The government is legally obligated to pay contractors. If not, they could sue for nonpayment.

Q: Couldn't the government just print more money?

A: No. The Federal Reserve is responsible for creating money. The government funds itself through tax revenue and borrowing.

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, said 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 limit, those payments would likely be delayed.

Q: Could the president ignore the limit?

A: Some experts say he could. But the White House has said its lawyers don't think he has that authority.

Q: Are global investors panicking?

A: The stock market has drifted lower over the past couple of weeks. But investors aren't panicking. Stocks could sink further just before Oct. 17 if the government remains shut and no sign of a deal on the debt limit seems near. Investors would likely also dump Treasurys.

A: No longer able to borrow, the government could spend only from its revenue from taxes and fees. This would force an immediate spending cut of 32 percent, the Bipartisan Policy Center estimates. If the debt limit wasn't raised through November, Goldman Sachs estimates that government spending would be cut $175 billion. That's equivalent to about 1 percent of the economy. Stock markets would likely fall. Household wealth would shrink. Consumer confidence could plunge. Americans would cut back on spending. Higher rates on debt would raise other borrowing costs, including mortgage rates.