The White House is warning that catastrophe will strike if Congress fails to raise the limit on the national debt: With too little cash to pay creditors, the U.S. government would default. Interest rates would skyrocket. And the economic recovery would collapse.

But behind the scenes, Treasury Secretary Timothy F. Geithner has already begun juggling the books to conserve cash, draining a special account at the Federal Reserve. And with the debt forecast to hit the legal limit of $14.3 trillion in just a few weeks, he has a range of tools at his disposal, including borrowing money from a pension fund for federal workers.

Geithner also has authority to pay investors first for interest they’re owed on the debt, according to a decades-old legal opinion. A growing number of conservatives argue that by making interest payments first, the government could avoid default and the Obama administration’s predictions of economic Armageddon.

But the nation could pay a substantial price in the form of higher interest rates if it relied for long on such evasive maneuvers, the Government Accountability Office said in a recent study. And financial analysts say market confidence could be shattered if Geithner had to cut off pay to combat troops or stop writing Social Security checks — even if he never missed an interest payment.

“I think the failure to meet any commitment would be viewed by the markets as default and would be deeply unnerving,” said Robert Rubin, who, as Treasury secretary in the mid-1990s, prevented the debt from breaching the limit during the longest battle over the issue on record.

“We don’t know” what would happen in the event of default, Rubin said. “But I think it is totally irresponsible to take the risk of trying to find out.”

Markets are already uneasy about the looming battle over the debt ceiling, which promises to consume Congress when lawmakers return next week from their Easter break.

Washington Post