Treasury Secretary Janet Yellen predicts it would trigger a “widespread economic catastrophe.” Moody’s Analytics says it would be “cataclysmic.” 

If Congress fails to raise or suspend the debt limit in the coming weeks, the severe effects would be felt around the world and potentially for generations to come, according to economists.

The debt limit is the amount of money the U.S. government is authorized to borrow to pay its legal obligations. Yellen has warned lawmakers that if they don’t act soon, the country will run out of money to pay its bills sometime in October.

Congress routinely raises or suspends the limit regardless of which party’s president is in the White House. But this time around, Republicans and Democrats are at odds. Members of the GOP, who are in the minority in both the House and Senate, are refusing to vote for raising the debt ceiling as a way of protesting what they see as reckless spending by Democrats, although raising the borrowing cap alone would not authorize any new spending, only pay off existing commitments.

"For more than two months now, Senate Republicans have been completely clear about how this process will play out," Senate Republican Leader Mitch McConnell, R-Ky., said Monday, noting that they will support a "clean" funding measure to avert a government shutdown, but made his position on a debt hike clear: "We will not be supplying Republican votes to raising the debt limit."

Democrats believe both parties should share the responsibility of raising the debt limit, noting they voted three times with Republicans to do so under former President Donald Trump.

"After today there will be no doubt, no doubt, about which party in this chamber is working to solve the problems that face our country and which party is accelerating us towards unnecessary, avoidable disaster," Senate Majority Leader Chuck Schumer, D-N.Y., said on the Senate floor Monday.

But while they would prefer not to do so, Democrats indicated last week that they are prepared to go it alone when the House passed a bill that would suspend the debt limit through 2022 and fund the government through the end of this year. Senate Republicans blocked the measure later Monday, but Schumer pledging "further action" to prevent default and avoid a shutdown.

While Congress still has time, the first step is already being taken. In 2019, lawmakers voted to suspend the debt limit through the end of July 2021. When the limit was reinstated, the Treasury Department began enacting what are called “extraordinary measures” so that the government can continue paying its obligations. 

Those measures include pausing contributions to some government pension funds and other investments, suspending state and local government series securities, and borrowing from money that had been allocated to manage exchange rate fluctuations. 

When those maneuvers are exhausted, the Treasury Department will then spend its cash on hand. Treasury Secretary Janet Yellen wrote in a letter to Congressional leadership Tuesday that the U.S. Treasury "is likely to exhaust its extraordinary measures" if Congress does not take action to suspend or raise the debt limit by Oct. 18.

But what if the debt limit remains in place for too long? What would happen then? Here is a look at what economists predict the fallout would be:

1. Default

If the Treasury Department runs out of money and the debt limit is not lifted, it would mean the U.S. would default on its payments for the first time in its history. In other words, people, institutions and governments won’t be paid, at least not on time anyway. 

Then many other dominoes would begin to fall.

2. Payments wouldn’t be made

Domestically, the government would have to stop cutting checks that people rely on, including social security payments, military and federal employee paychecks, food assistance, tax refunds and the new monthly child tax credit checks, among others. 

And of course, payments to lenders toward the national debt would not be disbursed, either.

3. Interest rates would soar

Because the U.S. has never defaulted before and Treasury debt is considered one of the safest assets in the world, the country is able to borrow money more cheaply than other nations. But if it misses a payment, that would all change, experts say.

Due to the newly elevated risk, lenders would demand a higher interest rate. If interest rates rise for U.S. government borrowing, it would blow up the deficit.

And as Yellen wrote in a Wall Street Journal opinion piece last week: “It would also make America a more expensive place to live, as the higher cost of borrowing would fall on consumers. Mortgage payments, car loans, credit card bills—everything that is purchased with credit would be costlier after default.”

In its analysis, Moody’s predicts “Americans would pay for this default for generations, as global investors would rightly believe that the federal government’s finances have been politicized and that a time may come when they would not be paid what they are owed when owed it.”

4. World markets would be roiled

A default could shake foreign investors’ trust in American companies and cause stocks to plunge, even if the matter is resolved quickly, Moody’s said. The financial services company predicts stock prices would be cut almost in one-third at the worst of the selloff and that $15 trillion in household wealth could be lost.

5. Recession and job losses

Yellen says a default would also reverse the country’s economic recovery and trigger a recession. Moody’s estimates 6 million jobs could be lost and the nation’s unemployment rate could soar to 9%, up from 5.2% today.

If the impasse extended through all of November, the Treasury Department would be forced to eliminate a cash deficit of approximately $200 billion by slashing government spending, Moody’s said.

The Biden administration sent a fact sheet to states earlier this month warning of some of the ways the government would have to slash its spending if it defaults.  Those areas could include disaster relief efforts, Medicaid, the Children’s Health Insurance Program, infrastructure funding, education, public health and food assistance, the White House said.