Investment advisers have this explanation of possibilities of our situation:

In June, the debt o f the U.S. reached the ceiling, meaning no more could be issued. That’s bad news for a country that continuously spends more than it takes in. Thus the deadline imposed by the debt ceiling has brought the issue to the forefront. (If the debt limit was reached in June and we’ve continued to spend more than our revenues, how have we financed the shortfall? The federal government has borrowed from federal retirement funds; the courts ruled in the past that when we do this, it’s not an expansion of our net debt, since America is borrowing “from itself.” The well-known deadline of August 2 is the date on which the capacity for borrowing in this way is projected to be exhausted.)

If we reached the debt ceiling in June, why is August 2 so important?

If the debt ceiling isn’t raised, as I said, some people will have to go unpaid. Among the candidates are our nation’s creditors. Failure to pay creditors is called default. 

. . . Another thing I’m most sure of is that no one knows what the repercussions of default and downgrade would be.

Neither spending cuts nor tax increases would solve the immediate threat at issue.

When deficit spending is unavoidable, we have to borrow. Since we’re at the current debt ceiling, continuing to borrow requires that the ceiling be raised. If the ceiling isn’t raised and we can’t borrow, we won’t be able to make good on all of our obligations. Someone will have to go unpaid: employees, creditors, soldiers, retirees, vendors, etc. I don’t think anyone believes we can make good on all of our obligations without borrowing. Thus we have to solve this immediate problem. We can enact spending cuts and/or tax increases, but invariably these things will only take effect over the long run. In the short run we have no choice but to raise the debt ceiling and keep borrowing.

What are the obstacles to a solution?

It seems apparent that in recent decades, politics has become more partisan, and solving the nation’s problems has taken a back seat to adhering to ideology and getting re-elected. And what gets people elected? Promises of more: more benefits without increased taxation, and more take-home pay without reduced largesse.