WASHINGTON - The White House and congressional leaders are fighting over whether and how to raise the debt ceiling, as concerns mount that inaction will lead to a destructive financial riptide.
Republican leaders have tied a potential debt limit deal to giant cuts in the federal deficit, and President Barack Obama is conducting daily meetings with the GOP to strike an agreement before the U.S. Treasury runs out of cash. That's set to happen on August 2.
Below are more details about the debt ceiling's history, what's happening now and how it could affect you.
-- What is the debt ceiling?
This is essentially the nation's credit-card limit. The debt ceiling was born in 1917, when Congress passed a law allowing the U.S. government to acquire debt to finance America's efforts during World War I. The law gave the U.S. Treasury an unprecedented amount of discretion to take on debt, but it also included a safety valve for accountability: A congressionally-set debt cap.
We hit the limit -- $14.29 trillion -- on May 16 and are running on fumes by borrowing against a federal employees' retirement fund, according to the U.S. Treasury Department, the financial arm of the federal government. Even as Treasury uses money from the retirement fund, the agency estimates it won't be able to pay all federal government bills as of August 2.
But some have warned that a deal must be completed even sooner -- by July 22 -- so Congress has enough time to properly write and process the legislation.
-- What happens if there's no deal by Aug. 2?
If the limit isn't raised, the U.S. government may default on its financial obligations. The government may not be able to pay Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds and many other commitments, the Treasury Department said in a publication called "Debt Limit: Myth v. Fact."
Keep in mind, however, that the dire predictions coming from the White House and the GOP in Congress are part of a storied negotiating dance that in past showdowns have been resolved by compromise as the witching hour draws near.
Will that happen this time? Stay tuned.
-- How does the possibility of default affect me?
While the Obama administration has said that government benefits could be disrupted if the debt ceiling is not raised, Obama raised the volume Tuesday by telling CBS Evening News he couldn't guarantee that seniors would receive Social Security checks sent after the deadline.
But it's far from clear that would happen. Republican leaders, continuing to say they cannot work with the White House, offered a stopgap plan Tuesday to raise the debt ceiling even if negotiations fail.
Though markets have not yet been affected, many business groups and economists warn that a failure to raise the debt ceiling could be calamitous to economy. The closer the U.S. gets to the August 2 deadline, the greater the chances that markets could get spooked and confidence in the economy could be further sapped, economists, bankers and business groups say.
However, not all agree that a failure to raise the debt ceiling would result in a government default or in financial ruin. Some conservatives, including Jim DeMint, R-S.C., have accused the Obama administration of "playing Chicken Little" on the debt ceiling. DeMint told Fox News Sunday that Social Security and Medicare have enough funds to pay beneficiaries "for several years."
-- Has Congress raised the debt limit before?
Yes. The Treasury Department reports that since 1960, Congress has raised, extended or tweaked the debt limit 78 times. The agency notes that 49 of those changes have occurred during Republican presidential administrations and 29 during Democratic ones.
In March 2006, then-Senator Obama voted against raising the debt limit. The measure passed. At the time, Obama said that the need to raise the debt limit showed a failure of leadership. "It is a sign that the U.S. government can't pay its own bills," he said.
-- Why is there an impasse?
Republicans, who have a majority in the House of Representatives, are refusing to pass a debt limit increase without reducing deficits. House Speaker John Boehner, R-Ohio, said that any deal must include a spending cut larger than the debt limit increase.
While there is broad agreement that the federal government must reduce government expenses, Democrats want a deal to include more tax revenue. Republicans insist that there be no tax increases.
Republicans blame the stalemate on Democrats, saying it would be irresponsible to raise taxes.
Political leaders have been working furiously through the summer to strike a deal. Major entitlement programs -- Obama calls them "sacred cows" -- such as Medicare, Medicaid and Social Security, could lose funding. Obama has also said the tax code could be overhauled.
The size of the deal is another question. The White House has called for a package that would cut the federal deficit by up to $4 trillion over a decade (that would include $3 trillion in cuts and $1 trillion in new taxes).
Boehner has favored a smaller, $2 trillion deficit reduction package.
-- Will there really be dire consequences if there's no deal by August 2?
It depends who you ask. Many argue that the Treasury Department could avoid a default by deciding to prioritize who gets paid. Owners of government debt would be at the top of the list. But the Treasury Department says that's not possible to prioritize. Others say Obama can invoke part of the 14th Amendment to the Constitution and raise the limit unilaterally.
-- Who wins?
It's too early to tell whether Republicans or Democrats will come out ahead.
Public opinion is split between fear of a default and concern about a larger government debt. Forty seven percent of Americans say they are more concerned that raising the debt limit would lead to more spending and a bigger debt, while 42 percent say their larger fear is that not raising the debt limit would force a default and hurt the economy. Those findings come from a poll conducted July 7 -- July 10 by the Pew Research Center for the People and the Press and The Washington Post.