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Debt limit deal failure will affect your wallet

Monday, July 11, 2011

President Barack Obama Monday says so far there has been no deal on raising the government's debt limit. Talks are going on around the clock as we inch towards an August 2 deadline. At that point, the Treasury Department says the U.S. will start defaulting on its loans.

So what does this all mean to you? The stalemate could have real consequences that affect your wallet.

Chances are you know the debt ceiling talks are going on, but you may not know what will happen to you if the deal is not done. By most accounts, no deal will cost you more money.

The president says you will feel the effects of failed debt ceiling deal if both sides fail to come up with a compromise.

"Higher interest rates on their cars loans, on their mortgages and their credit cards and that is sucking a whole bunch of additional money from the pockets of the American people. I promise you they will not like that," said President Obama.

That's because if the U.S. defaults on its loans, it will cost more for the nation to borrow money and your interest rates will go up, too.

"If I have a credit card, and my interest is variable and not fixed, it is going to adjust relative to rising interest rates," said Lance Roberts of Streettalk Advisors.

Roberts does believe a debt ceiling deal will get done, but he adds if the U.S. does default on its loan payments, it could lead to another recession. That may cause losses in the stock market and lower the value of a 401K by 20 to 30 percent, or maybe worse.

"It's going to be a 201K," said Roberts.

He adds another recession could lead to higher unemployment. That's bad news for those already looking for work. Small business owner Gary Penney says the slow economy is keeping his staffing low.

"There is no way I could hire anybody right now," said Penney who owns Lakewood Trees.

And the impact of a default would be felt at the gas station and grocery store. As investors move money into commodities, things like oil will go up in value making gasoline cost more.

"It's bad. I mean, I have four cars," said Ysidro Gonzales.

Let's break this down. If no deal gets done and the U.S. defaults on loan payments, you can expect interest rates to go up. That means new car loans, home loans, and credit card interest rates go up. This is something most experts say will happen.

Next are the maybes. If investors leave the dollar, gas prices could go up and food prices could go up.

The big question is will the failure to reach a deal cause another recession? If yes, unemployment may go back up and the value of your 401K could drop 20 to 30 percent or more.

(Copyright ©2014 KTRK-TV/DT. All Rights Reserved.)

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