To employ the phrasing of Gov. Chris Christie, America hit the debt ceiling and didn’t vaporize. New borrowing has put the U.S. Treasury right up against its $14.3 trillion borrowing limit, but financial markets aren’t crashing over fear that this will lead to default.

So, given that non-reaction so far, just who is the Treasury Secretary kidding? This whole fear-fest over the U.S. debt ceiling is starting to resemble the bank bailout in 2008 when warnings of financial apocalypse shoved Congress into approving TARP. Here is how Timothy Geithner put it in a  letter to Sen. Michael Bennet:

Failure to raise the debt limit would force the United States to default on these obligations. … A default would inflict catastrophic, far-reaching damage on our nation’s economy, significantly reducing growth, and increasing unemployment. … Default would not only increase borrowing costs for the federal government, but also for families, businesses and local governments. … Default would also have the perverse effect of increasing our government’s debt burden. … It would increase rates on Treasury securities, which would increase the cost of paying interest on the national debt.

But why, exactly? There is no reason for the U.S. to miss a debt payment, even after the supposed Aug. 2 deadline. Team Geithner has plenty of flexibility about which bills to pay and plenty of dough with which to do it. Here is economist Ed Yardeni:

Over the past 12 months through April, net interest expense of the federal government was $213.1 billion. Will there be no money to make these payments if the debt ceiling isn’t raised? There will be plenty. Over the past 12 months through April, the Treasury collected $2.27 trillion in revenues. In April alone, when individual tax returns are due, revenues totaled $289.5 billion, a bigger than expected gain, confirming that the economy recovered smartly over the past year.

It would be criminally insane for the Treasury to stop making interest payments on our debt just because Congress failed to agree on raising the ceiling when the revenues are certainly available to make the payments and auctions will continue to rollover maturing debt. It is insane for administration officials to suggest otherwise.

And just how badly would markets take it anyway if there was a temporary payment delay but the result was a deal which significantly cut spending today and capped spending tomorrow? Famed investor Stanley Druckenmiller is willing to take his chances:

Here are your two options: piece of paper number one—let’s just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don’t know, six days, eight days, 15 days, but I know I’m going to get it. There’s not a doubt in my mind that it’s not going to pay, but it’s going to be delayed. But in exchange for that, let’s suppose I know I’m going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured,” he says.

Then there’s “piece of paper number two,” he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. “I don’t have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we’re going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it’s a no-brainer. It’s piece of paper number one.

The White House would love a clean up-or-down vote on raising the debt ceiling. But David Walker, the hawkish former U.S. comptroller general said this today:

While the debt ceiling must be increased, any extension should include appropriate conditions to reduce short-term spending while also addressing the huge structural deficits that lie ahead. This should involve bringing back tough statutory budget controls, including new debt-to-GDP targets with automatic enforcement mechanisms beginning in 2013. Adopting a number of initial steps designed to reduce direct spending and tax expenditures as down payments to meet the new target would also be appropriate.

We must not allow what has already happened in Greece and Ireland to happen in the U.S. No one really knows when the markets will lose confidence in the willingness and ability of the federal government to put its finances in order. If it does, we will see a sudden and dramatic increase in interest rates that will only increase our already serious economic, fiscal and unemployment challenges.

The debt ceiling provides an opportunity to make a big dent in America’s dangerous debt situation.  Not taking advantage of this moment is what scares me.