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He suggested other early austerity steps would likely include halting of highway projects and research grants, and orders to stop clinical trials of new drugs and cancer research.

The state government shutdown in Minnesota may indeed offer a preview of what lies ahead on a larger scale. State parks were closed. Driver’s licenses weren’t issued. Beer giant MillerCoors was told it couldn’t sell beer in the state because its licenses hadn’t been renewed.

Some conservative congressional Republicans have questioned whether there would really be a crisis if the Aug. 2 deadline were missed. They note that the government could cut programs instead and still make interest payments at least for a while. But Congress‘ top two Republicans, House Speaker John Boehner and Senate Minority Leader Mitch McConnell have agreed that failure to raise the limit could provoke an epic economic catastrophe.

And major rating agencies such as Moody’s and Standard and Poor’s have already signaled they’re poised to lower the nation’s coveted Triple-A credit ratings if no agreement is reached. They also hinted that the ratings might be lowered even if the U.S. continues to make interest payments on its debt.

“Global investors will start asking themselves, how long will they get paid if Social Security recipients don’t?” said Mark Zandi, chief economist at Moody’s Analytics. “There would be long-lasting economic damage. The economy would be back in recession. Tax revenues would be falling again and the deficit increasing.”

The U.S. has gone through short government shutdowns before — most recently in late 1995 and early 1996 — because of political standoffs.

But now the stakes are far higher because the dispute may capsize the entire U.S. economy, not just shut down government agencies and delay benefit checks.

Any unprecedented default on the U.S. debt would send the price of Treasury bonds — long viewed as the world’s safe-haven investment — tumbling and interest rates soaring. And the higher rates wouldn’t just be on Treasury bills and bonds but also on a wide variety of consumer and business loans pegged to Treasury rates, from mortgages to credit cards, car loans and student debt.

A U.S. default, or near-default, could also cause financial panic around the globe as international investors flee Treasury bonds and bills and other dollar-denominated investments. The value of the U.S. dollar against other major currencies could tank.

Given the nation’s already high unemployment rate and shaky housing markets, it would likely send the economy quickly back into recession.

“There’s a huge amount of misunderstanding about the seriousness of this among the American people,” said Robert Reischauer, former head of the Congressional Budget Office and now director of the Urban Institute. “One reason is that, while experts have been apoplectic about this for the better part of four months, there is no tangible evidence of any of these consequences coming to pass,” because the stock market has still been going up and interest rates have remained low.

“Most people spend their lives worrying about the things that affect them immediately and the things they have some control over. And this is not one of them,” Reischauer said. “But it will be very soon.”

The Dow Jones Industrial Average lost 778 points on one day in October 2008 when the House voted down the bank bailout bill, known as the Troubled Asset Relief Program — a vote that was quickly reversed.

Economists can easily see a 1,000-point or larger plunge in the Dow if the negotiations to raise the debt ceiling fail — dealing a savage blow to already fragile 401(k) plans and similar retirement investments.

How hard and fast really is the Aug. 2 date? The national debt, the legacy of years of accumulated deficit spending by presidents and legislators of both parties, now stands at $14.34 trillion. The government blew past the legal debt limit on May 16. Treasury has kept paying bills with accounting footwork ever since but is nearing the end of that, officials say.

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