MELISSA BLOCK, HOST:
This week's government shutdown could be just a warm-up for an even bigger battle in a couple of weeks. That's when Congress debates whether to raise the limit on the amount of money the federal government is allowed to borrow. If the debt ceiling is not raised on time, President Obama warns Washington won't be able to keep paying its bills.
PRESIDENT BARACK OBAMA: It'd be far more dangerous than a government shutdown, as bad as a shutdown is. It would be an economic shutdown.
BLOCK: No one is exactly sure what would happen if the government suddenly had to make do without a credit card, but experts agree the fallout could be scary and far-reaching. NPR's Scott Horsley reports.
SCOTT HORSLEY, BYLINE: Government shutdowns are messy and disruptive, but we've lived through them before. The U.S. government, on the other hand, has never had to go cold turkey on borrowed money. That's what will happen by October 17th if Congress fails to raise the debt ceiling and the government has to get by with just the amount of cash that comes in every day.
Former Republican budget staffer Steven Bell has been trying to imagine what that would look like.
STEVEN BELL: The Treasury has to wait all day for money to come in and see how much money they have and see how much they can pay. It's kind of a stunning thing because any business that ran that way would would be bankrupt.
HORSLEY: Bell, who's now with the Bipartisan Policy Center, says within a few days, some government bills would go unpaid. And while it might not be as visible as this week's shutdown, the effects of such a default would be far more serious.
BELL: The consequences of a one-day or two-day failure to pay the debt will not lead to a shutdown, but you don't want to look at your 401(k) a week later.
HORSLEY: Two years ago, Congress merely flirted with not raising the debt ceiling and it cost the government its triple-A bond rating, as consumer confidence and the stock market plunged. Stocks have since rebounded and the government is still able to borrow money at rock bottom prices. But economist Nariman Behravesh of IHS Global Insight says lawmakers shouldn't play chicken again.
NARIMAN BEHRAVESH: The effect could be big and it would be global because the ripple effects would just spread all over the world.
HORSLEY: The credit rating agency Standard & Poor's says it expects lawmakers will raise the debt limit, but it's not offering any prediction of what would happen if they don't. S&P analyst Marie Cavanaugh says other countries, such as Russia and Uruguay, that defaulted, even briefly, saw lower bond ratings and higher borrowing costs.
A U.S. default would be unusual, though, in that it's not triggered by underlying economic stress.
MARIE CAVANAUGH: This would really be, in our opinion, the first time that a sovereign had defaulted because of brinkmanship in various branches of government.
HORSLEY: President Obama underscores that this would be a self-inflicted wound and, as he noted today, failing to raise the debt limit wouldn't actually save the government any money.
OBAMA: If you buy a car and you've got a car note, you do not save money by not paying your car note. You're just a deadbeat.
HORSLEY: Even deadbeats usually find people willing to lend to them, but often at very high interest rates. Bell, who used to work on Wall Street, doesn't want the U.S. government to take that chance.
BELL: I don't know anybody - hedge-fund managers, bond salesmen, bond traders - I don't know anybody there who would tell you that they know the consequences of not paying on time and in full all of the bills the United States owes.
HORSLEY: Bell worries that when we look back on this fall's budget battles years from now, the question we'll be asking is, what were they thinking? Scott Horsley, NPR News, Washington.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.