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(CNN) - I think President Obama and the Democratic and Republican leaders with whom he’s been negotiating an increase in the nation’s debt ceiling all fully appreciate the stakes. Based on everything that I’m hearing, they are all convinced that the consequences of failure would be a huge disaster for the U.S. economy and the American people. It probably would make the 2008-09 recession look like child’s play.
The warnings have been coming fast and furious in recent days – from the president, his treasury secretary, Timothy Geithner, and, today, from Federal Reserve Chairman Ben Bernanke. Plus, Moody’s, one of the big three credit rating agencies, is warning that the U.S. may lose its perfect AAA rating in the next few weeks if the debt ceiling isn’t raised in time. And all of this helps explain why Senate Minority Leader Mitch McConnell came up with his rather complicated, last-minute and very desperate proposal to resolve the issue.
Their concern is that failure would send a disastrous signal around the world. America’s creditworthiness would be seen as not reliable. Interest rates immediately would go up; the value of the dollar would go down; inflation could rise; and a new recession would grip the nation. Some doom-and-gloom experts warn that unemployment would quickly get much worse.
In effect, they say, failure to raise the debt limit would effectively amount to an enormous hidden tax on all Americans.
So the bottom line is this: the negotiators know that failure is not an option. The Democratic and Republican leaders in the room with President Obama and Vice President Biden must come up with a solution – and quickly.