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Implications of a US Downgrade

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It appears that politicians in Washington, D.C., are moving closer to a deal that would extend the ability of the government to borrow money beyond August—preventing a default on U.S. government bonds or other obligations.

But even if the U.S. debt ceiling is raised, a short-term deal that does little to raise revenue or cut spending might result in a downgrade of the country's long-term debt. Moody’s and Standard & Poor’s might decide that the failure to produce a longer-term solution to the U.S. debt burden indicates that the country's debt is riskier and its credit rating must be downgraded.

So what happens next? Do global markets sell Treasurys? Do mutual funds, insurance companies, pension funds, individual holders, and central banks have to sell? Does the Federal Reserve ride to the rescue?

You might be surprised by some of the possible answers. Click ahead to see what happens if the U.S. credit rating is downgraded. » View Slideshow

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