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By Jason Stipp and Jeremy Glaser | 12-07-2012 02:00 PM

Debt Ceiling Debate Adds More Turbulence for Investors

Investors should prepare to ride through a rough patch as the impending 2013 debt ceiling becomes a bargaining chip in Washington's deficit debate.

Stipp: I'm Jason Stipp from Morningstar.

As if headlines don't have investors scared enough about falling off a fiscal cliff, this week saw a resurgence of concerns about crashing into the debt ceiling.

Here to talk about how the debt ceiling fits into this game of chess is Morningstar markets editor Jeremy Glaser.

Jeremy, thanks for joining me.

Glaser: Good to be here, Jason.

Stipp: You've been keeping us updated about the fiscal cliff. Can you first talk about any movement we saw on the fiscal cliff this week, and then what's going on with the debt ceiling now? This has come into the headlines?

Glaser: We didn't get a ton of movement in terms of the negotiations between the two sides about what the resolution that the fiscal cliff is going to look like. We just heard really more of the same. The president wants to raise taxes more than the Republicans want, wants to cut spending less. The Republicans want sharper cuts to entitlements, are willing to raise revenues, but want to do so without raising tax rates and are looking to raise a little bit less money. So that really stayed the same.

But there was a resurgence and talk about the debt ceiling this week. The debt ceiling is the statutory limit of the amount of money the Treasury is allowed to borrow. So essentially it says you could only issue X number of bonds. So it's not necessarily approving new spending, but it's approving the bonds that we need to issue to pay for this spending that we've already authorized.

We heard a lot about the debt ceiling in 2011. You remember there was a big fight over potentially raising the debt ceiling; it resulted in the downgrade of the United States sovereign credit rating by S&P, and certainly it was a big part of the story of the volatility that we saw in the summer of 2011. And I think we're starting to see the inkling of that volatility might be returning as the debt ceiling has become a pretty big bargaining chip as they try to figure out the fiscal cliff as well.

Stipp: So, why is the debt ceiling coming up? What's the connection between the debt ceiling and the fiscal cliff?

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