A panicked new report from the Treasury Department insists that a failure by Congress to lift the debt ceiling could lead to a financial crisis even worse than the one in 2008:

The United States has never defaulted on its obligations, and the U. S. dollar and Treasury securities are at the center of the international financial system. A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.

Here's the back-story: On Oct. 17, the Treasury Department will only have about $30 billion in cash on hand to pay its bills — and it won't be able to borrow any more money unless Congress lifts the debt ceiling. That means the federal government could soon start defaulting on some of the bills it owes, be it bond payments or Social Security checks.

Freak out! (AP)

Right now, the Obama administration's stance is that this would be catastrophic. What's more, administration official insist there's nothing whatsoever they can do to avoid a fiasco. They can't ignore the debt ceiling, as some legal scholars think. They can't prioritize the important payments over less-urgent payments, for instance. They can't mint a trillion-dollar platinum coin to circumvent the debt ceiling. Either Congress figures out how to lift the ceiling before Oct. 17, or we find out what happens.

(And for those wondering, Goldman Sachs and other analysts currently think that even a prolonged government shutdown is unlikely to push back the day of debt-ceiling reckoning by more than a few days.)


-- Debt-ceiling doomsday comes Oct. 17. Here’s what will happen next.

-- How a debt ceiling fight could hurt the economy, in six charts.