NEW YORK - If the U.S. maxes out its credit card, economists say, the Treasury will still be able to make the interest payments on its debt.
"We're not going to default. But that's irrelevant," Mark Zandi tells CBS News chief economic correspondent Anthony Mason. Zandi, chief economist at Moody's Analytics says, "At the end of the day if we don't raise the debt ceiling, the economy's going to go back into recession. Interest rates are going to spike."
Zandi, who's advised candidates in both parties, says the recession would be deep.
The Treasury would immediately have to cut & prioritize its spending. Debt & interest payments would be made first. $500 billion is due in August alone. Social Security and Medicare would be next on the list.
"On August 2nd, the government won't have to cut Social Security payments and Medicare," Zandi says. "But if it drags on for 3 or 4 weeks, then yeah, I think they'll have no choice but to cut almost everything that the government does, including Social Security and Medicare."
Then, the government would have to begin furloughing employees.
In April, Treasury Secretary Timothy Geithner said, "it would shake the basic foundation of the entire global financial system," if we hit the debt ceiling. Geithner has also said the biggest casualty would be confidence.
Ric Mishkin, a former Federal Reserve governor, says the countries that have lent money to the U.S would begin to doubt whether they'll be paid back.
"That's what drives the interest rate up," Mason asked.
"That drives the interest rate up and that's one of the things that would hurt us," Mishkin replied.
"Because all the debt we have to pay back, we have to pay back at a much higher rate."
"And we have a ton of it," Mishkin said. "That's the key thing. We have a ton of it."
14.3 trillion dollars to be exact. If there isn't progress by mid July, Mark Zandi says, the pressure will start to build. That's when Moody's has threatened to lower the government's triple AAA credit rating, if a resolution is not in sight.