The crisis over raising the US debt ceiling may have been manufactured by politicians, as many on Wall Street charge, but its effect on consumers and the broader US economy is likely to prove very real. Fear that Congress may not raise the government\'s $14.3 trillion (Dh52.48 trillion) legal borrowing limit by August 2, inviting a credit rating downgrade or default, has already made it more costly for banks and companies to borrow short-term money. If that persists, consumers and small businesses may also find it harder to access credit. Those who can get loans will likely pay more for them. Companies, meanwhile, are hardly likely to ramp up hiring if funding costs are on the rise. That\'s just about the last thing the US economy needs after it grew at a plodding 1.3 per cent pace in the second quarter and produced nearly flat growth in the first quarter. Article continues below \"What this debt ceiling debate has done has created an unintended tightening,\" said Jim Caron, head of interest rate strategy at Morgan Stanley. \"It\'s given providers of capital another reason not to lend.\" Congress has refused to raise the debt ceiling without a long-term deficit reduction plan. With the August 2 deadline looming, Republicans and Democrats had yet to agree on spending cuts and tax increases. \"If it\'s dragged out, that would be the point where it hurts the consumer. We could see companies hoarding cash out of uncertainty,\" said Gennadiy Goldberg, fixed income analyst at 4Cast Ltd in New York. Most on Wall Street think Treasury will avoid defaulting on its debt and will come up with a way to meet interest payments due in early August. But lenders are taking no chances. Rates on $91 billion of Treasury bills due August 4, the first to mature after the August 2 deadline, spiked to 28 basis points on Friday, the highest rate the bills have paid since they were issued in February. Analysts say money market funds have been increasingly wary of holding such bills or lending against them in the repurchase, or repo market, where large Wall Street banks raise short-term funds. Short-term loans The funds themselves, large providers of short-term loans, have lost $37.5 billion in withdrawals in the latest week as investors, worried about their exposure to Treasuries, have sought safety in traditional bank accounts. That means they need to keep more cash on hand to meet further redemptions. Unlike deposit accounts, money market funds are not insured. In 2008, the Reserve Primary Fund imploded after ploughing more than 1 per cent of assets in Lehman Brothers Holdings Inc. When the bank collapsed, the fund suffered a flood of redemptions. The worst case scenario for markets and consumers would be a rerun of 2008, when Lehman\'s failure caused credit to seize up across the globe and brought world markets to the edge of collapse. The US economy fell into its worst recession since Second World War. Most analysts think that\'s not likely this time. Yet even if the country avoids default, a downgrade from at least one of the big three credit ratings agencies is increasingly likely. That could force banks to pay more to finance short-term loans with Treasuries and could ratchet up the borrowing costs for companies in the commercial paper market. If it costs General Motors or General Electric more to borrow in short-term markets, \"they will pass that on to the consumer\" looking for a car or appliance loan, said Roseanne Briggen, analyst at IFR, a unit of Thomson Reuters. Over time, it could also push up longer-term borrowing costs. Lawrence White, a professor at New York University, said Treasury yields could rise by a quarter percentage point over time, dragging up mortgages and student loan costs. \"It\'s certainly not good news,\" he told Reuters Insider. \"Every quarter percentage point matters in a weak economy.\" One saving grace may be that firms have cut back reliance on commercial paper markets after getting burned when Lehman Brothers failed. At the close of the second quarter, GE Capital, a unit of General Electric had $40.7 billion in commercial paper outstanding, down from $105 billion in early 2008. Largest conglomerate That move away from short-term borrowing is one reason the largest US conglomerate has made its peace with having lost its once-coveted \"AAA\" credit rating in 2009. It has also vastly boosted the amount of cash it holds on its books over that time. At the quarter\'s end, the largest US conglomerate had about $91 billion in cash on hand, up from $16 billion at the start of the financial crisis. \"With $90 billion in cash, we\'re prepared for a liquidity disruption if there were one,\" Chief Financial Officer Keith Sherin said in a July 22 interview. \"It\'s just a dramatically different liquidity profile for the company.\" Caterpillar Inc, which has a smaller finance arm that is focused on financing purchases of the company\'s heavy equipment, had about $4 billion in commercial paper outstanding at the close of the first quarter, according to a filing with the US Securities and Exchange Commission.