Republicans Downplay 'Default,' Dismiss Debt Deadline

"There's always revenue coming into the Treasury, certainly enough revenue to pay interest," said Rep. Justin Amash, R-Mich. "Democrats have a different definition of 'default' than what we understand it to be. What I hear from them is, 'If you're not paying everything on time that's a default.' And that's not the traditionally understood definition."

If this sounds familiar, it's because it has been Republicans' line of attack since their debt-ceiling battle with Obama in the summer of 2011.

Then, as now, the GOP argues it's not the debt limit that would cause default, it's Obama. The country would have the funds to pay its creditors if the administration would just delay payments to certain agencies.

Hoping to turn that argument into law, Republicans have touted legislation that would force Treasury to prioritize which bills it pays, pushing interest payments to the country's creditors, as well as to senior citizens and veterans, to the front of the line and putting everything else second.

The measure makes for solid messaging—few voters are likely to disagree that Social Security and veterans' disability payments should be top priorities—but budget wonks and financial industry experts criticize the idea.

"I don't know any serious person who doesn't think this will be cataclysmic," said Steve Bell, a former Republican staff director of the Senate Budget Committee and now senior director with the Bipartisan Policy Center.

The assumption that the U.S. will honor all of its debts—and honor them on time—is the foundation for much of the global financial system, Bell argues. So the fundamental problem with the Republican position is that Treasury makes between 3 million and 5 million financial transactions a day, and if the federal government starts to pick and choose which it will honor, it will land the economy in chaos.

Many of the world's leading financial experts, who are watching the slow pace of negotiations in Washington with dread, agree.

"The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy," IMF Director Christine Lagarde said Thursday.

Indeed, while Republicans and the White House might disagree over how to define a default, the world's markets are likely to see any missed payment as a signal of profound financial weakness in the United States, and react accordingly.

"It's just unthinkable," said Sen. Angus King, an independent from Maine. "We don't have to speculate about this; just go back and look at 2011. See what happened when we even flirted with it. Markets went down. Jobs went down. The economy contracted."

Republicans don't dispute the risks of toying with Treasury's Oct. 17 deadline. (In fact, some expressed concern about scaring Wall Street.) Rather, they seem determined to correct what they view as a blatant misconception of what truly constitutes a default on the nation's debt.

"We're not going to default; there is no default," said Rep. Mick Mulvaney, R-S.C. "There's an [Office of Management and Budget] directive from the 1980s, the last time we got fairly close to not raising the debt ceiling, that clearly lays out the process by which the Treasury secretary prioritizes interest payments. Tim Geithner understood that, because the last weekend in July of 2011 he was in New York City telling the primary dealers that we were not going to default on our debt."

Mulvaney even went so far as to say Obama and White House officials have been dishonest when warning of default: "If the president wants to lie to the public, I can't stop him."

Congressional Democrats do not dispute this narrow definition being pushed by the GOP. Rather, they wonder openly as to why Republicans would even risk default.

"I wouldn't recommend playing Russian roulette with the full faith and credit of the United States," said Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee. "The secretary of the Treasury has given his best estimate of the time at which it becomes very risky not to raise the debt ceiling. He's never said that you can be absolutely precise about these things, but he says the risks are way too high at that point."

While some Republicans cast the Oct. 17 cutoff as artificial, members like Republican Rep. Dave Reichert of Washington—who suggested the date was "fudged" by the Treasury Department—said lawmakers have no choice but treat it like a real deadline.

Democrats concede what they cast as a small point: The actual date might indeed fluctuate depending on the government's receipts. But that's not the point, they say.

"I don't think it matters because it's the buildup, the lack of investment, the effect that it has on the market," said Sen. Amy Klobuchar, D-Minn. "I really don't think we should be messing around with trying to out-predict the Treasury Department. When they say that they've used all extraordinary means and that they predict this date will be in mid-October, I believe them."

Patrick Reis and Stacy Kaper contributed to this article.