WASHINGTON (7/28/11)—Tensions mount on all fronts as the government continues its push-and-pull fight to work out a plan to increase the nation’s debt ceiling. The Credit Union National Association (CUNA) is closely monitoring developments as the U.S. Congress wrestles to write the formula of how deep the funding cuts and how high the revenue raisers will be in a final plan. That equation is the key element behind the partisan jabbing that is seen as delaying progress on a resolution. CUNA remains vigilant to detecting any possible development that could threaten the federal credit union tax status. To date, there has been no indication that the credit union exemption is being considered in the debt ceiling debate, reports John Magill, CUNA senior vice president of legislative affairs. “Preserving the federal credit union tax status remains a top CUNA priority and the volatility surrounding the debt ceiling negotiations makes it prudent for CUNA to remain on the alert. “However, neither the Democrat’s preferred debt package nor the Republican’s plan takes aim at credit unions at this point,” Magill says. President Obama and federal lawmakers have until early August to increase the government’s statutory borrowing authority or risk defaulting on the nation’s debt. So far, CUNA Chief Economist Bill Hampel points out, the broader financial markets are not reacting as if there is significant risk of the debt ceiling not being raised in some fashion. “The general consensus is that investors believe that by the last minute, something will be done to raise the debt ceiling. This is because the financial markets understand the catastrophic consequences of not raising the ceiling: a possible default on the debt, and/or having to balance the budget cold turkey on Aug. 3, which would require immediately cutting federal spending by about 35%. Either of these would throw the economy into another recession that could make the last one look mild,” Hampel says. He adds that even if policymakers miss the debt ceiling deadline by a few days, the upset in the financial marketplace--demonstrated by falling stock values and rising interest rates--likely would force lawmakers and the administration into agreement quickly. “The effects would—one can hope--be so short-lived that credit union members would unlikely have much time to react. However, within the context of an extended crisis savings rates could drop, loan rates could rise—and consumers could shift funds around. “The best bet for credit unions would be to stay liquid just in case,” Hampel adds.