Not to raise debt limit risky for U.S. economy: Bernanke

Published: 14/05/2011 05:00



U.S. Federal Reserve Chairman Ben Bernanke
warned Thursday that the U.S. financial system may be destabilized again if the
Congress would not raise the government debt limit.

“Using the debt limit as a bargaining chip is
quite risky,” Bernanke said when he testified before the Committee on Banking,
Housing and Urban Affairs of the Senate.

The U.S. debt ceiling, which now stands at 14.29
trillion dollars, is expected to be hit early next week and the government still
needs to borrow to finance its huge fiscal deficit.

Republicans in Congress have refused to raise the
debt limit unless they can get the Obama administration and its Democratic
supporters to agree to sweeping long-term spending cuts.

“It is a risky approach not to raise the debt
limit in a reasonable time,” Bernanke said. “At minimum the cost will be an
increase in interest rates that will actually worsen our deficit.”

“The worst outcome would be one in which the
financial system was again destabilized… which of course would have extremely
dire consequences for the U.S. economy,” warned the central banker.

The mounting debt issue has become one of the key
challenges that the U.S. is facing.

The U.S. public debt increased rapidly after the
burst of the financial crisis and economic recession. The federal government
deficit hit 1.41 trillion dollars in 2009 and 1.29 trillion dollars in 2010. It
is expected that the figure in 2011 will reach another historic high because of
the stimulus policies taken by the Obama administration.


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