If no debt deal, only "very ugly" options left

Planning for the worst case - in which lawmakers fail to raise the debt limit - is a scenario Treasury Secretary Timothy Geithner won't talk about.

"I can say to you with confidence, we have no other option to buy more time for Congress and they don't need more time," Geithner says.

Suppose for a second that a deal cannot be reached, and the government can no longer borrow money, what then?

CBS News correspondent Whit Johnson reports that Geithner may not say it publicly, but the news has surfaced that a small team of Treasury officials is working on a contingency plan.

Steve McMillan is the former Deputy Director of the White House Office of Management and Budget under George W. Bush.

A former insider, he says there would be painful decisions about who gets paid and who doesn't.

"I would say the options Treasury has if the debt limit is not raised are all very ugly," McMillan says.

Consider a recent report from the Bipartisan Policy Center. It says in the month of August, the Treasury has to make $306 billion in payments, but it will take in only $172 billion.

Under one scenario, that's enough to pay interest on the debt, Social Security, Medicare and Medicaid, defense contractors and unemployment benefits. But there would be no money left for active duty military, federal workers, and a slew of other programs.

Never before has raising the debt ceiling been so difficult. Congress has done it 102 times since 1917, and 10 times in the last decade.

This time, Treasury says there is no room for a last minute deal.

As negotiations drag on, credit-rating agencies have threatened to downgrade America's credit. If they do, that will increase the cost to borrow money, adding even more to the Federal debt.