(Bloomberg) -- Pressure on Democrats to increase the federal debt limit and avert a crippling default escalated on Monday, with the party facing a cumbersome legislative procedure that could complicate efforts to deliver on Joe Biden’s economic agenda.

Senate Republicans blocked a bill late Monday to suspend the debt ceiling until December 2022 and keep the government operating past the end of the fiscal year on Sept. 30. That’s left Democrats no clear alternative to overcome the filibuster except using a budget procedure that could take nearly two weeks.

The GOP maneuver sets the stage for a protracted debate over debt that Republican lawmakers hope will help them portray Biden’s expanded child tax credits, paid family leave and new benefits for Medicare recipients as out-of-control government spending. An eventual Democrat-only vote to raise the debt limit would provide fodder for election attack ads.

Democrats haven’t given up on the idea of forcing Republicans to join them to address the issue, however -- raising the risks of financial-market distress as the Treasury’s deadline for running out of cash looms. Treasury Secretary Janet Yellen has said the government will run out of money some time in October.

Republicans refused to back the debt ceiling suspension even though a major portion of the current debt accumulated under GOP control of Congress and the White House. That’s a departure from the usual bipartisan votes on the matter.

Averting Shutdown

Following the Senate’s 48-50 vote, Majority Leader Chuck Schumer didn’t immediately signal Democrats’ next step, instead castigating Republicans for “one of the most reckless, one of the most irresponsible votes I have seen taken in the Senate.”

House Speaker Nancy Pelosi has said that Democrats are determined to avoid a government shutdown or a default on U.S. obligations. 

Senate GOP leader Mitch McConnell also has said he doesn’t want a default or shutdown but is insisting Democrats provide all the votes to raise the debt limit.

Time is running short. Yellen will now come under pressure to provide a clearer picture of a default deadline. The Bipartisan Policy Center, a Washington think tank, has estimated the date will come between mid-October and mid-November.

So far, financial markets aren’t showing much concern. Investors are demanding only slightly higher interest rates on Treasury bills due in late October and early November -- the period considered at risk for delayed payments. The pricing disparity on Monday was just 0.02 percentage point, less than during previous episodes of debt-limit stress.

Blake Gwinn, head of U.S. rates strategy for RBC Capital Markets, said he doesn’t expect any broad market impact from the debt-limit fight beyond Treasury debt maturing in that narrow window, unless the country gets “within a few days” of default or a major credit rating agency downgrades the U.S. debt rating, as occurred in 2011.

“Because we’ve been through this before, I think people will still expect a deal to come together until the very last minute,” Gwinn said.

During the debt limit battles of 2011 and 2013 investors grew worried as default neared. In 2011, yields on effected Treasury bills began to surge about eight days ahead of default and in 2013 about 20 days beforehand. Stocks tumbled in the aftermath of the 2011 sovereign downgrade by S&P Global Ratings.

Taxpayer Cost

The debt standoffs also have direct costs to taxpayers because of the higher interest rates investors demand because of the payment uncertainty.

Delays in raising the debt limit in 2011 forced the government to pay $1.3 billion in additional borrowing costs that year, not including any impact on the Treasury’s costs in later years, according to a U.S. General Accountability Office assessment the following year. 

Democrats can raise the debt ceiling on their own through a process called reconciliation, which bypasses the filibuster in the Senate. The most likely scenario would have Democrats revise an already-passed budget resolution that set the stage for an economic package of as much as $3.5 trillion, creating separate legislation to raise the debt ceiling.

The process would involve two lengthy Senate debates and “vote-a-ramas,” where scores of amendments could be offered. Once the Senate is finished, the House would have to clear the amended budget resolution and the debt-cap hike. Other Democratic lawmakers have stopped short of ruling out the go-it-alone strategy.

Democratic Senator Chris Van Hollen of Maryland dismissed the idea of going through the convoluted process and predicted Republicans would eventually go along with a debt ceiling increase. 

“They’ll have that on their hands,” Van Hollen said of a debt crisis. “It’s going to be pretty obvious to the American public after we vote on this a couple of times between now and then that they’re tanking the economy.”

©2021 Bloomberg L.P.