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Debt ceiling: If $4 trillion 'grand bargain' fails, is America in trouble?

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Already, credit-rating agencies have warned that the US could face a credit downgrade (making it more expensive to borrow) within the next couple of years, if action isn't taken to improve the government's finances.

"Pushing this beyond the election [in 2012] is incredibly risky," Ms. MacGuineas said in a recent interview with the Monitor. If the politics between Democrats and Republicans are difficult now, she argues, the election might end up only hardening the battle lines.

So far, financial markets aren't showing any signs of panic about US creditworthiness. Treasury Secretary Timothy Geithner has warned, however, that if Congress doesn't raise the debt limit by Aug. 2, the government will be unable to pay all its bills. The current talks are aimed at raising that debt ceiling, paired with efforts to bring down future deficits.

Mr. Obama said both sides are determined not to let things get to the brink of a Treasury default.

A $2 trillion bargain, like a larger one, would avert the risk of an near-term default by the Treasury.

But it might mean that Obama and Congress have to bargain again over the debt limit before the next election.

Moreover, unless such a deal is paired with commitments by both parties to keep working for additional progress, the move might signal to investors that the US political system is broken. The problem: control of government is divided between two parties that can't find common ground on the core issues of entitlements and taxes.

To many Republicans, the bottom line in negotiations is that any deal should not raise new tax revenue.

Democrats, meanwhile, are holding the line against any reduction in entitlement benefits. If those positions don't budge, it becomes nearly impossible to reach the $4 trillion target (which would cut projected deficits nearly in half).

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