It's hard to say happens if we blast through the debt ceiling in the middle of October, because it's never happened before in American history. But it would almost certainly be something very, very bad: a crisis, if we're lucky, or a historic calamity, if we're not.
It's easier to say what happens if we get close to blasting through the debt ceiling, because that did happen in the summer of 2011.
It short: It was bad. Bad enough that anybody even remotely concerned about the stock market, the housing market, or uncertainty should abandon this ridiculous debate over the inevitable. We're going to raise it. Because we have to.
Here are the low-lights of August 2011, in the weeks before the debt ceiling vote. Consumer confidence fell 22 percent. The S&P 500 fell 17 percent. The 30-year fixed-rate mortgage spread rose by 70 basis points, adding about $100 to an average monthly mortgage payment. Taxpayers are stuck with an extra $19 billion this decade, to make up for higher borrowing costs during the last nervous days.
In picture form, this is what the lasting damage from the last debt fight looked like:
Nobody can prove that all of this happened explicitly and exclusively because of the debt ceiling showdown. After all, Europe was a bloody mess two years ago, too. But, as the Treasury Department reports (and illustrates, with the graphs above), it's reasonable to assume that the impending, unprecedented catastrophe of a debt ceiling breach was a major cause of the jitteriness, since many of these indicators turned up so soon after we raised the debt limit.
Just this morning, the New York Times reported that John Boehner privately confided that he won't allow the government to blow through the ceiling, even if it means introducing a bill that most of the House GOP says it won't support. What wonderful news that would be!
Meantime, his spokesman is still asking for concessions, saying Boehner has been clear "that a ‘clean’ debt hike cannot pass the House, that’s why the president and Senate Democrats should drop their ‘no negotiations’ stance, and work with us on a plan to raise the debt limit in a responsible way.”
But there is a way to raise the debt ceiling responsibly. Everybody in Washington knows how. You just ... raise it.