Why flirting with a U.S. default will come with a cost

The debt ceiling circus has arrived in D.C. and seems poised for a monthslong stay.

The big picture: The closer Uncle Sam comes to potentially stiffing creditors, the bigger the implications will be for the markets and the economy.

Driving the news: While the debt limit was hit last week, it just means the Treasury Department has to start using “extraordinary measures” (i.e. accounting maneuvers) like running down cash balances — and deferring contributions to certain government pension funds — to keep paying its bills.

State of play: Treasury says it can keep juggling payments at least until June.

• Wall Street analysts say Treasury could actually keep it up until August or September before it really comes close to running out of money. But nobody knows exactly, because it depends on the flow of Federal tax receipts and outlays.

Between the lines: For now, markets don’t seem to be too worried.

• Stocks were down slightly last week, but mostly because of soft economic data on retail sales and industrial production.
• There have been some tiny tremors in markets for Treasury futures and credit default swaps — a kind of insurance against default — on U.S. government debt. That’s generated a few headlines, but they’re really not a big deal.

Yes, but: The more drawn-out the debt ceiling fight gets — and the closer the government comes to outright default — the jumpier markets will get.

Flashback: That’s what happened in the summer of…