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In a symbolic vote to send a message to budget negotiators, the House on Tuesday defeated a measure to raise the national debt ceiling without any accompanying deficit or spending reduction provisions. The Republican-controlled House voted 318-97 on the legislation that would have raised the federal government's debt limit by approximately $2.4 trillion.
Democrats warn that the Republicans risk rattling financial markets
What happens if Congress doesn't raise the debt ceiling before Aug. 2?
No one knows for sure. But the going assumption is that no good can come of it.
Treasury would not have authority to borrow any more money. And that can be a problem since the government borrows to make up the difference between what it spends and what it takes in. It uses that borrowed money to help fund operations and pay creditors.
Geithner's critics say he could prevent default by simply paying the interest due to bondholders.
But since average spending -- minus interest -- outpaces revenue by about $118 billion a month, Geithner won't be able to pay all the country's bills.
That means he will have to pick and choose who to pay and who to put off every day. And there's no guarantee that paying interest while shirking other legal obligations will protect the country from the perception of default.
Geithner said it would be akin to a homeowner who pays his mortgage but puts off his car loan, credit cards, insurance premiums and utilities. The mortgage is taken care of, but the homeowner's credit could still be damaged.
Ultimately, if lawmakers fail to raise the ceiling this year, they will have two choices, both awful.
They could either cut spending or raise taxes by several hundred billion dollars just to get through Sept. 30, which is the end of the fiscal year. Or they could acknowledge that the country would be unable to pay what it owes in full and the United States could effectively default on some of its obligations.
The first option would be impossible to execute without serious economic repercussions.
And the second option could cripple the economy and send world markets into a tailspin.
"Not only the default but efforts to resolve it would arguably have negative repercussions on both domestic and international financial markets and economies," according to the CRS.
At a minimum, a default could hurt U.S. bonds, the dollar and investors' portfolios. "Our bond market and stock market would crash," said former Congressional Budget Director Rudolph Penner.