President Obama and congressional Republicans have both drawn a line in the sand over the upcoming series of budget battles, the first of which is whether Congress will raise the country's debt limit - which is expected to hit as early as Feb. 15.
The president is refusing to negotiate, imploring Congress to "do its job."
"They will not collect a ransom in exchange for not crashing the American economy,"
House Republicans, meanwhile, will hold a vote Wednesday that, if it eventually passes both the House and Senate, would raise the debt ceiling for about three months, giving lawmakers some time to figure out how to avoid default. However, while kicking the can down the road offers a brief respite from one fiscal hurdle, there are still two others that Congress is facing.
In addition to the debt ceiling, lawmakers also have to deal with averting $1.2 trillion in self-imposed automatic spending cuts, or sequester, that takes effect on March 1, and they'll also have to pass a bill to extend government funding, which currently expires at the end of March.
As both sides are worlds apart on all three issues, any failure to reach an agreement over three budget-related emergencies in the next few months could have dire consequences for your pocketbook.
The Debt Ceiling
The primer: Barring congressional passage of a debt ceiling increase, the $16.4 trillion debt limit is expected to be hit between mid-February and early March. It is a discretionary number set by Congress on the amount the Treasury is allowed to borrow to pay bills already incurred. (After difficult negotiations, Congress raised it in 2011 by $2 trillion.) Republicans want at least one dollar of spending cuts for every dollar the debt ceiling is lifted. Mr. Obama, however, argues that spending cuts are a separate discussion, since the debt limit has nothing to do with future spending. He recently described it this way: "You don't go out to dinner, then eat all you want and then leave without paying the check."
The impact: The Treasury would be able to pay only the amount that comes into the Treasury each day from tax receipts, fees and market transactions. Steve Bell with the Bipartisan Policy Center said the in the month of February, the Treasury would be expected to pay out $175 billion more worth of expenses than it takes in. That means a lot of bills - 12 percent of the Gross Domestic Product - won't be able to be paid.
In a letter to House Speaker John Boehner, Treasury Secretary Timothy Geithner outlined some specifics of things that could go unpaid. "These include payments for Social Security; Supplemental Security Income; Medicare; Medicaid; national security needs, including military salaries, military retirement, veterans' benefits, and defense contractors; income tax refunds; federal employee salaries and retirement; law enforcement and operation of the justice system; unemployment insurance; disaster relief; goods and services sold to the government under contracts with small and large businesses; and many others," he wrote.
It would be difficult to predict which receipts would be paid and which would not, Bell said, noting that the Treasury Department processes between two and three million transactions each day, all of them computer-generated. The federal agencies, Bell said, submits its invoices to the Treasury and the Treasury disburses funds upon receipt. It's a computer-generated first-come, first-serve system and not possible to prioritize which invoices should be paid.
While the country has never defaulted, economists and analysts warn of dire consequences because it means a lot of uncertainty in the marketplace and the economy as a lot of people will go unpaid. Stan Collender, who has worked for the House and Senate Budget Committees, said default would create "a lot of uncertainty" in the marketplace and cause "hardships" for Americans.