How The Debt Ceiling Debate Could Affect Interest Rates

At the end of the day, after they make points with their followers, I believe democrats and republicans will compromise and raise the debt ceiling.

However, all the current arguments, posturing, and waiting until the last minute has not given confidence to either consumers or the debt rating agencies.

The ratings agencies are quick to downgrade these days, because they are on the defensive about their role in the financial crisis. Critics said that they turned a blind eye to risk.

There is a chance that, even with an agreement to avoid default, at least one ratings agency may downgrade U.S. debt.

How would a downgrade affect ordinary people like you or me?

First, the interest rates that the U.S. must pay would go up. This would make interest on the national debt an even higher component of government spending. Secondly, the treasury rates are used to set all other interest rates. If the treasury rate increases, so would all mortgages, car loans, etc.