Will Debt Stalemate Mean Economic Armageddon?

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WASHINGTON -- Many in Washington are prophesying catastrophe if politicians don't reach a deal to raise the debt ceiling by Aug. 2, the day America will no longer have enough cash to meet all its financial obligations.
       
President Obama warns those who loan America money might now say "the U.S. government doesn't pay its bills so we're going to start pulling our money out." 

Both Moody's Investors Service and Standard and Poor's Ratings Service are already threatening to downgrade America's golden AAA credit rating.

Many conservative lawmakers say the key to getting the nation's fiscal house in order is to eliminate wasteful government spending. 

For more information on waste, fraud and abuse in Washington, click on the links below:

Many analysts warn that such a move would likely lead to higher interest rates because the Treasury Department would have to raise rates to attract concerned investors. Those higher rates would ripple through the entire economy.

"That means higher interest rates for businesses. That means higher interest rates for consumers," the president said.

Such an occurrence would be a severe drag on an already anemic recovery, according to Sen. Rob Portman, R-Ohio, who served as head of the Office of Management and Budget under President George W. Bush.

"We don't want that to happen. We don't want our economy to be even further weakened," Portman said.

The stock market could take a steep drop, hurting businesses, 401ks, and pensions, as well as wiping out many jobs.

"All the headwinds that we're already experiencing in terms of the recovery will get worse," Obama warned.

The Wall Street Journal's Stephen Moore addressed all the doomsday predictions and whether or not they have any merit on "The 700 Club," July 20.

But not everyone agrees that things would get so bad so quickly.

"I think you'd see very little disruption," Sen. Jim DeMint, R-S.C., said.

DeMint points out that almost $200 billion in taxes will continue to roll into Washington each month, enough to prevent defaulting and fund the size of a government as big it was in 2003.

"A lot of these new programs would have to be cut back. We'd probably have to delay the implementation of 'Obamacare,' which costs a trillion dollars," he said.

However, that would still leave the federal government short some $135 billion every month, unable to cover nearly 45 percent of its costs.

Still, the bottom line is no one can really say what exactly would happen if the debt ceiling isn't raised.

The real question may be whether the country is going to find out soon.

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