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The US actually hit the debt celling back in May. The government has been using accounting tricks for the last 2.5 months to pay all the bills. Of course revenue is still coming in but with an estimated $1.2T budget deficit for 2011 that's not going to be nearly enough. So you're right -- the hitting of the debt ceiling back in May wasn't a huge deal because there was money left to pay the bills. What happens in early August is the government simply runs out of money. Revenue will continue coming in and would be enough to continue paying the interest on the debt for a while however the government would have to start making some very politically unpopular choices about which bills to pay.

Even if we can continue paying the interest payments you have something of a symbolic default if the US government is unable to get its fiscal affairs in order. While the US may not technically default there will be a crisis of confidence. The risks of the symbolic default are just as bad as a real default and the ramifications are almost impossible to calculate.

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