Raising Debt Ceiling Does Not Create New Deficits: Bernanke
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Chairman of the Federal Reserve Ben Bernanke yesterday urged Congress to raise the nation’s borrowing limit to avoid a potential default on U.S. debt, warning that the economy is still at risk from political gridlock over the deficit.
Speaking at the University of Michigan, Bernanke likened Congress to a family arguing that it can improve its credit rating by not paying its bills and also pointed out that raising the country’s legal borrowing limit did not constitute an authorisation for new government spending.
Chairman of the Federal Reserve Ben Bernanke yesterday urged Congress to raise the nation’s borrowing limit to avoid a potential default on U.S. debt, warning that the economy is still at risk from political gridlock over the deficit.
Speaking at the University of Michigan, Bernanke likened Congress to a family arguing that it can improve its credit rating by not paying its bills and also pointed out that raising the country’s legal borrowing limit did not constitute an authorisation for new government spending.
“It is very, very important that Congress takes the necessary action to raise the debt ceiling to avoid a situation where our government does not pay its bills,” he said, noting that a similar impasse over the debt ceiling in 2011 resulted in the first-ever downgrade of the U.S.’s credit rating and wreaked havoc on financial markets.
At the same time, Bernanke said the debt limit has only “symbolic value” and advocated eliminating it:
[quote] It has got symbolic value I guess. No other country in the world has this particular institution. The way to address it is to have a sensible plan for spending and a sensible plan for revenue and make a decision how big the government should be or how small it should. [/quote]
Related News: US Debt To Be Twice The Size Of GDP By 2037
Related News: Credit Ratings Agencies Warn of Possible US Downgrade in 2013
The United States officially hit its $16.4 trillion legal debt limit at the end of 2012 but the Treasury says it is using “extraordinary measures” to extend the limit until late-February. As a result, until the arbitrary debt ceiling is raised, the Treasury is not allowed to borrow new money to finance its debt obligations.
Earlier on Monday, President Barack Obama delivered a stern warning to rival Republicans against using the debt ceiling as leverage to get more spending cuts, saying markets could go “haywire” if there was another confrontation over the issue.
He said:
[quote] [Republicans] will not collect a ransom in exchange for not crashing the American economy – the full faith and credit of the United States of America is not a bargaining chip. [/quote]
“Default would increase our borrowing costs and damage economic growth and therefore add to future budget deficits, not decrease them. This is why no President or Secretary of the Treasury of either party has ever countenanced even the suggestion of default on any legal obligation of the United States,” he added.
Related News: US Headed Towards Fiscal Abyss: Xinhua
Related Story: Will Congress Dithering Condemn Future Generations Of Americans?: Mohamed El-Erian
