The last time the U.S. government was about to pay off its debt in 2011, the stock market crashed and almost panic broke out in the economy before Washington came to its senses and made a deal.

Much the same scenario is unfolding now, with potentially even more dire consequences, and there are stark differences between then and now that make a bad outcome much more likely.

One difference is that the political climate is more restless. Not only is there more polarization and intransigence in Congress, but the razor-thin Republican margin, the personalities of key players, and the outside pressure on both sides make it more difficult to reach a compromise.

Adding to the danger is that both the fiscal state of the government and the US economy as a whole are more fragile than the last time such a crisis occurred. In 2011, the country emerged from a recession. This time it seems to be one.

It’s a much tougher economic environment for this to happen, said Douglas Holtz-Eakin, president of the American Action Forum, a Washington-based conservative policy and advocacy group.

And it doesn’t have to go to full-fledged bankruptcy before the government and millions of middle-class Americans suffer serious long-term damage: When foreign governments and financial markets begin to have the slightest doubt that the US government will pay its bills, they will begin to hedge their bets in ways that push up interest rates and the federal deficit even further, ultimately costing the U.S. economy and its consumers in the form of higher prices for goods.

That kind of inflation takes decades, not months or years to abate.

In the global economy, in which the United States imports far more than it sells abroad, the dollar is known as the world’s reserve currency. That means it’s the currency that all other countries trust to stay rock solid. Being the reserve currency has huge benefits for the United States. Perhaps most importantly, it means the U.S. Treasury pays low interest rates when it borrows money to cover deficit spending.

That’s why economists and other experts warn that bankruptcy would be catastrophic.

Until now, bankruptcy has been unthinkable and reason enough to expect a repeat of previous battles over the debt ceiling. In 2011 to date, the nation’s closest stock default fell nearly 20% as the crisis deepened. Aside from the rattling short-dated bond markets, investors in US stocks have so far remained eerily calm.

Right now everyone is just frozen in place. I think we still have a week before stocks become more volatile, said Chris Rupkey, chief economist at FwdBonds, a financial markets research firm based in New York.

President Biden and House Speaker Kevin McCarthy (R-Bakersfield)

met on tuesday and intend to meet again meet on friday for the second time this week,

giving people at least a little hope that a deal is still possible. But neither party has budgeted from the starting position. The Republican-majority House passed legislation last month under party rules that would cut federal spending by nearly 14%, tighten requirements on social programs and unravel some of Biden’s climate measures.

Biden has insisted that Congress simply raise or cancel the debt limit, and approve spending that has already been approved by lawmakers.

Treasury Secretary Janet L. Yellen has said the government could

have no more money

as early as June 1.

How the two sides got to this point is remarkably similar to 2011. As then, a Democratic president sits in the White House battling a house that the Republicans won control of in the midterm elections. And then, as now, Congress had just approved major increases in federal spending in response to the Great Recession of 2009 and more recently the COVID-19 pandemic.

Beneath the surface, there are significant differences in the makeup of the GOP-led house. In the 2010 midterm elections, more than 60 Republicans captured seats in the districts President Obama had won two years earlier, said Sarah Binder, a congressional expert at the Brookings Institution.

But last year, only 18 such Republican victories were in swing districts, and most of the new GOP House members were more ideologically conservative or afraid of right-wing primary challenges than those who came to the House in 2011.

What that means, she said, is that there are significantly more Republicans who are likely less willing to compromise.

There was a larger cohort more cautious about going to war with Obama, Binder said, referring to a confrontation over raising the debt ceiling. The intensity of the partisanship this year is quite astounding.

In the battle over the 2011 debt limit, some 60 Republicans in the House were part of the

fiscally conservative

tea party movement pushing for lower taxes and a cut in federal spending as the price of passing a higher debt limit. Today the pressure comes from a similar number of Republican members, from the Freedom Caucus who make up the most conservative and extreme elements of the GOP.

Led by Republican firefighters, including Ohio’s Jim Jordan, Arizona’s Andy Biggs, and Georgia’s Marjorie Taylor Greene, the Freedom Caucus nearly scuppered McCarthy’s bid to become a speaker and has wielded significant influence in partisan politics.

There’s a kind of destructive component to the conservatives in Congress today, said William Gale, a senior fellow at Brookings and an expert on federal economic policy.

And McCarthy has less room for error, with only a small Republican margin in the House. He can only afford to lose four to his party, while then chairman John Boehner had a cushion of 24 members.

Holtz-Eakin says the obstacle to solving the crisis comes from the White House. Obama, he argues, was more willing to bend after coming under attack during the midterm elections. Biden’s party lost

9nine

House seats in the 2022 midterm elections versus 63 in 2010. It is the White House, he said, that should get the two party leaders to negotiate and forge a deal.

So far, analysts say, there is no sense of urgency and probably won’t be until investors and others bring the two sides to the table for serious talks.

Believing that a stock market sell-off is necessary to resolve this, said Mark Zandi, chief economist at Moodys Analytics. We need a lot of red on the screen to get voters, donors, and business leaders to bang on lawmakers’ doors and say, let’s get over this.

The reason they haven’t yet may be that markets and others have seen the political drama over the debt cap multiple times in the past with almost always endings.

Even if the debt ceiling is breached, Zandi and other analysts don’t think it will do any long-term damage, as long as it’s for a day or two.

“Even if, God forbid, the Treasury misses a payment, you can bet your lowest dollar that Congress will pay its bills quickly.”

said

Rupkey

said

.

Yet in 2011 the debt was so long it led to it

S&P Standard & Poor’s

to downgrade US debt from the top AAA rating for the first time, based on governance. And the events of 2011 finally led to an increase

in

interest rates.

Brookings Gale

say says

there are only three options: make a deal on spending and raise the debt ceiling; get a clean increase or suspension of the debt limit; or, what he called, something crazy happens, like the treasury trying to get out of the dilemma

hitting mines

a trillion dollar coin or invoke the 14th amendment to raise the debt limit.

Whatever it is, one thing is almost certain: it will be decided in the 11th hour.