Federal debt limit threatening a financial crisis President Barack Obama and House Speaker John Boehner took their rival ideas American people Monday

WASHINGTON -- With an impasse over the federal debt limit threatening a financial crisis, President Barack Obama and House Speaker John Boehner took their rival ideas directly to the American people Monday night with the good faith and credit of the U.S. government potentially hanging in the balance.

Or is it?

The dueling addresses in prime time underscored the significance of the debt debate, but with both sides aware that financial calamity could occur if the $14.3-trillion debt limit isn't increased -- as it routinely has been for decades -- there remained a question whether government default was imminent or that Congress and the White House were simply playing full-contact politics.

"There's a lot of rhetoric," said financial adviser David Aquilina at Leonard & Company in Troy, Michigan's largest independent brokerage firm. He spent Monday trying to calm ordinary Michiganders worried what to do if the worst happens, and believing it won't because there is simply too much at stake.

Certainly, Obama and Boehner made it seem that they were a long way from any deal with only a week to go. The president used his address to plug what he had hoped would be a bigger deal that would cut the deficit by $4 trillion but also end tax breaks for wealthier Americans and corporations. But House Republicans rejected it, he said, making compromise "a dirty word" in Washington with their "cuts-only approach" to budgeting.

"The American people may have voted for a divided government but they didn't vote for a dysfunctional government," Obama said, rejecting a six-month, $1-trillion debt increase suggested by Boehner as not enough to settle the markets and setting up a replay of the current crisis.

Boehner, an Ohio Republican, sounded a disciplinarian note in his rebuttal to the Democratic president, saying that when voters gave his party the majority in the House last year, they expected reductions in government spending.

"More spending and more debt is business as usual (in Washington). I've got news for Washington, those days are over," a defiant Boehner said. "The American people will not accept an increase in the debt limit without significant spending cuts and reforms." He insisted he would move forward with his short-term plan -- which allows Obama to ask to increase the debt ceiling $1.6-trillion more next year subject to certain congressional triggers. Obama said he wouldn't accept the plan.

Obscured by the dueling speeches was the fact that neither party wants to let Aug. 2 pass without an increase to the debt limit -- currently more than twice what it was 10 years ago -- because of the potential fallout. Without the ability to issue enough new bonds, government would have to make tough choices about which bills to pay and which to ignore. Sooner or later, it could affect interest payments to investors -- driving up rates for everyone and damaging the nation's credit. Other government obligations -- such as Social Security checks and Medicare benefits -- could be affected. Stock markets could tank and the economy could be plunged back into recession.

But Republicans see an opportunity to force cuts with the debt ceiling vote and are refusing Obama's suggestions that new tax revenue should come with spending cuts.

"It'll get resolved," said John Nixon, Gov. Rick Snyder's budget director. "They'll come together, they have to."

In order for Congress to do so, someone will have to blink first. Just before Boehner announced his latest plan Monday, Senate Majority Leader Harry Reid, D-Nev., issued his own plan, raising the debt ceiling by $2.7 trillion and cutting spending by that amount over 10 years. But with $1 trillion of that coming in the drawdown of troops in Iraq and Afghanistan -- funding not typically included in the general budget -- Boehner declared the plan "full of gimmicks" and said he would send the Senate his plan.

Strictly speaking, the debt limit has nothing to do with congressional spending -- it just allows bills already incurred to be paid. But people across the nation see it otherwise: A CNN poll done July 18-20 showed 45% of Americans supporting a debt ceiling increase only if it was accompanied by deep cuts, and 36% opposing any increase at all.

"If they just allow it to go through, it's just going to continue," said Don Jakel, with the Tea Party of West Michigan.

"The time for Democrats and the president to get serious about the need to cut spending is long overdue," said House Ways and Means Committee Chairman Dave Camp, R-Midland, expressing support for Boehner's plan.

So far, the markets have reacted mildly to the impasse -- the Dow Jones Industrial Average fell less than 1% Monday.

At the Troy brokerage firm, Aquilina advised clients that the U.S. has raised or extended the debt limit 78 times since 1960 and was unlikely to withdraw the underpinnings for bonds considered the safest in the world.

"There's not a politician out there who doesn't want to see this passed," he said.

But Oakland County Executive L. Brooks Patterson, a Republican, said he wonders whether the time isn't ripe for high-stakes bargaining to get deep, lasting government spending cuts.

"What's worse, to bring it to a head and experience that or just put American survival at risk?" he said.

Wayne County Executive Robert Ficano, a Democrat, said risking default could be ruinous to an economy in southeastern Michigan trying to dig out of a long recession. The flow of federal money to the county would stop just as interest hikes made services more expensive.

"Everybody's struggling at this point," he said.

The same goes for the state, which budgets hundreds of millions of federal dollars which could -- potentially -- stop. Nixon said he doubts that will happen and believes federal spending must be brought under control.

A deal almost certainly will need bipartisan support because many of Congrress' most liberal and conservative members are likely to see the concessions both sides would have to make as unacceptable.

Democrats say they think the next big move must come from Republicans, now that their party has offered deep cuts and -- under Reid's plan -- without tax increases.

"The degree to which the House Republicans have been willing to play games with our economy to score points with their base is shocking," said U.S. Rep. Gary Peters, a Bloomfield Township Democrat.