If No Debt Ceiling Deal Reached: A Reality Check

With each passing day without a deal on upping the U.S. debt ceiling, the possibility of Washington bumping into the current lid looms larger.

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By CBS NEWS
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Story Created: Jul 11, 2011 at 3:01 PM AKDT

Story Updated: Jul 11, 2011 at 3:01 PM AKDT

(CBS News) With each passing day without a deal on upping the U.S. debt ceiling, the possibility of Washington bumping into the current lid looms larger.

Many economists project that would happen Aug. 2. Many experts say the consequences would be dire.

On "The Early Show" Monday, CBS News Business and Economics Correspondent Rebecca Jarvis looked ahead at what could happen should talks on raising the ceiling end in failure.

She told co-anchor Chris Wragge, "The first thing is our debt rating gets cut. In the United States, we have a AAA debt rating. That means we have the best debt rating in the entire world. That would get cut.

"On top of that, that would send stock market shock waves through the entire system. You could see it not only here in the United States, but around the globe. And of course that's an impact on anyone's pension fund, their 401(k), and for the average individual, all of the sudden access to loans gets much harder, banks don't want to lend in a scenario like this. They're very risk averse and, in addition to that, the actual cost of loans is going to go up for anyone who wants to, for example, get a mortgage, buy a car, expand their business."

Would a short term deal help in the long-run?

'Not exactly," Jarvis responded. "It kicks the can down the road. The big complaint in corporate America right now is that there's so much uncertainty. They don't know the direction of our economy. They can't sense what the future will be, because there's all these new regulations likely coming down the pike, and they can't plan their business based off of that uncertainty. That essentially creates more uncertainty and it says, 'We're gonna deal with this problem again down the road,' and it just means businesses that might think about hiring are still saying, 'I don't know what the future holds."'

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