Default? It's bad, it's bad!

UNLESS YOU'RE a veteran of the War of 1812 - and U.S. life expectancy hasn't risen that much - then you don't know what it's like when America doesn't have the ability to pay its debts.

And, hopefully, you'll never find out.

Democrats and Republicans in the Senate were said to be hammering out a deal last night that would not only reopen the federal government, but also raise the so-called debt ceiling to America's bill-payers to save us from default.

But default is still a very real possibility. No one knows what will happen if and when the bill reaches the House Republican caucus. President Obama said yesterday that if lawmakers don't get their act together, "we stand a good chance of defaulting, and defaulting could have a potentially devastating effect on the economy."

So, what's the deal with the default?

Q. Let's start with the basics - what is the debt ceiling?

A. Since World War I, Congress has been setting a legal limit on the amount that the federal government can borrow (ironically, it was supposed to make life easier for the Treasury, because Congress wouldn't have to vote separately each time it issued war bonds).

The current limit of $16.7 trillion was set after a congressional showdown in August 2011. Treasury officials say they've been juggling obligations since May but they're out of tricks on Thursday, D-Day for default.

Q. That doesn't sound exactly like "a debt ceiling."

A. You're right - many experts say it's a misnomer and the limit should be called a "payment ceiling." Congress and the government already spent the money, but what the Treasury needs is an OK to actually pay the bills.

Q. Wasn't raising the debt ceiling once routine?

A. For the most part. Just since 1960, Congress has voted to raise or amend the ceiling some 79 times, and 49 of those votes took place when a Republican was in the White House.

Occasionally, passage has appeared at risk because of legislative gridlock on Capitol Hill. One such episode, in 1983, caused the then-occupant of 1600 Pennsylvania Ave. to voice alarm. "The full consequences of a default - or even the serious prospect of default - by the United States are impossible to predict and awesome to contemplate," wrote the president, Ronald Reagan.

Q. But I heard some Republican congressman on TV saying that default wouldn't be so bad.

A. He's probably wrong. Default would likely be devastating - in several ways. First of all, U.S. Treasuries have long been considered the rock of the global economy, which is why China and so many other foreign investors snap them up - thus keeping interest rates low.

Default would wreck the underpinning of that bond market and cause rates to rise. Because debt repayments are a big and growing part of the U.S. budget, the higher rates would mean taxpayers would squander billions of dollars on unnecessary interest payments that could have gone toward things like fixing bridges or cancer research. Private borrowing like mortgages and car loans might also get more expensive. And default would hasten the decline of the U.S. dollar.

The other impact would be that government spending would be even more sharply curtailed than it's already been during the partial shutdown. Treasury has estimated that cuts just in the first month could total $108 billion, or 32 percent of spending - which could throw the fragile U.S. economy back into a recession.

Q. Has this happened before?

A. Yes - in 1814, after British troops burned down the White House, a slightly different scenario from anything we face today. In 1979 there was a "technical default" when some payments went out late after Congress raised the limit too close to the deadline - a blunder that cost an estimated $12 billion because of a subsequent rise in interest rates.