With the economy struggling, the U.S. budget in a deep deficit and the Treasury Department continuing to borrow money, the debt ceiling will need to be raised as early as March 31.
But many Republicans in Congress — including newly elected lawmakers backed by the "tea party" — have said they oppose raising the debt limit. New House Speaker John A. Boehner (R- Ohio) sounded combative Thursday after declaring barely two months ago that Republicans were going to have to act like adults on the issue.
Any increase in the debt ceiling must be accompanied by meaningful spending cuts, Boehner said. That has set up a showdown in coming weeks that Geithner warned could have "unthinkable" consequences.
Analysts, lawmakers and Obama administration officials all expect cooler heads to prevail — mainly because they always have in the past when the debt ceiling became political fodder. O'Donnell said the bond market was not yet concerned, viewing the dispute as a political sideshow.
But in Washington's volatile environment, lawmakers and the White House are engaged in an another game of economic chicken after December's faceoff over extending the Bush-era tax cuts, which Congress approved only a few weeks before they were set to expire.