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What Debt Debate Means For Your Bank Account

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(credit: CBS) Reg Chapman
Reg Chapman joined WCCO-TV in May of 2009. He came to WCCO fr...
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MINNEAPOLIS (WCCO) — Lawmakers in Washington D.C. are at an impasse over raising the nation’s debt ceiling. President Obama met with top Democrats in a closed door meeting at the White House on Sunday evening. Lawmakers have until Aug. 2 to agree on a plan.

Republican Speaker John Boehner has proposed a two-part plan that would cut spending and raise the debt limit by $1 trillion immediately, enough to last until the end of the year.

But the president said he will veto any plan that doesn’t extend the debt limit through the next election.

Now, both parties are trying to reassure the world financial markets the U.S. government will avoid defaulting on its debts.

“Positions are absolutely hardening right now so this is the point of maximum nervousness,” said Marketplace Money economic editor Chris Farrell.

Many Americans are taking notice of the hard party lines drawn in the race to loosen the bipartisan debt limit dead lock.

Both Republican and Democratic leaders say the plan is to avoid default but getting there has been more difficult than expected.

“I think there is a very clear message that is coming out of Washington and the message coming out is we are not going to default. The question is how do we avoid default and how messy is that process and how much does it shake the confidence of investors,” Farrell said.

Farrell also said if a deal is not reached, the average person would be impacted.

“What is a reasonable forecast is interest rates will go higher, the economy will be weaker and the unemployment rate will go up,” he said.

Farrell said this is bad news for a country already dealing with a fragile economy. Mortgage rates could climb, making homes harder to sell. People looking for work could face an even tougher job market.

Some say if the debt ceiling is not raised, more than $10 billion in social security and veteran benefits would be in jeopardy.

“Its breaking a trust and it’s breaking a trust with pensioners, its breaking a trust with retirees, its breaking a trust with so many people just to threaten this very situation,” said Farrell.

He believes the political system will rise to the occasion and do what is needed to ensure no damage is done to the standing and economy of the United States.

Treasury Secretary Timothy Geithner said a plan that doesn’t reach into 2012 would shake the markets.

Right now, the Asian financial markets are down, the Nikkei fell nearly 60 points since opening Monday morning. U.S. stock futures are also predicting losses when they open in the morning.

The only thing Farrell said would not be affected if the debt ceiling is not raised are credit card interest rates, because they are already through the roof.

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