- Obama military downsizing leaves U.S. too weak to counter global threats, panel finds
- Sen. Tom Coburn vows to slow down budget-busting bills ahead of recess
- Obama fantasizes about more executive power, signs new order on federal contractors
- Clintons call Klein, Halper, Kessler ‘a Hat Trick of despicable actors’: report
- Boehner accuses Obama of ‘legacy of lawlessness’
- Pro-marijuana group claims responsibility for Brooklyn Bridge flag swap
- Young adults shun Obamacare mostly due to cost: survey
- Stabbing attack on transgender girl, 15, was ‘bias motivated,’ police say
- LGBT adults still lean overwhelmingly toward Democratic Party
- Lawmakers rattled by Syria genocide horrors, call on Obama to act
Bernanke: Default on debt would increase deficit
Question of the Day
WASHINGTON (AP) — Federal Reserve Chairman Ben S. Bernanke warned U.S. lawmakers Thursday that they would deliver a "self-inflicted" wound to the nation's economy by holding up efforts to raise the government's borrowing limit.
Republicans have held up an increase in the borrowing limit because of concerns of growing spending that has widened the federal deficits.
Mr. Bernanke told a Senate panel that a default on the debt would lead to even greater federal deficits. Interest rates would rise, and the government would be forced to pay higher rates on its debt. At the same time, higher rates would slow the economy and an already-weak job market. That situation would curtail tax revenue.
The government hit its $14.3 trillion borrowing limit in May. The Treasury Department said it will default on its debt if the limit is not raised by Aug. 2.
"I think it would be a calamitous outcome. It would create a severe financial shock," Mr. Bernanke told the Senate Banking Committee during his second appearance before Congress this week. "Treasury securities are critical to the entire financial system. ... A default on those securities would throw the financial system potentially into chaos."
Mr. Bernanke was on Capitol Hill to deliver his semiannual economic report, but his second day of testimony was dominated by questions over the borrowing-limit impasse.
Republicans are demanding that any increase be accompanied by an equal amount in spending cuts. President Obama and Democrats have insisted that tax increases be a part of any long-term deficit-cutting deal, something Republicans have rejected.
On Wednesday, Moody's Investors Service said it will consider lowering the United States' credit rating because of a small but rising risk that the government will default on its debt.
A downgrade would raise interest rates on U.S. Treasury bonds, increasing the interest paid by U.S. taxpayers. It would would push up rates for mortgages, car loans and other debts, which are linked to Treasury rates.
The United States pays an average of about 3 percent on its existing debt, according to the Treasury Department. In 2010, that added up to $197 billion in interest payments.
The nonpartisan Congressional Budget Office has forecast that interest payments will rise to $463 billion by 2014. That figure is under an assumption that the U.S. keeps its top credit rating. A reduced rating would force the government to pay higher interest rates.
The impact of a default also would destabilize U.S. and global financial markets, Mr. Bernanke said, which would weaken economic growth.
TWT Video Picks
Both parties recognize the Democrats' scam
- Inside the Ring: Israel surprised by Hamas tunnel network
- Army's 3-D printed bombs to create 'a whole new universe' of lethal capabilities
- Chicken pox outbreak puts illegal immigrant facility on lockdown
- CRUZ: A tale of two hospitals: One in Israel, one in Gaza
- Colorado poll shows women tuning out Democrats' 'war on women' strategy
- Sarah Palin's online channel hits snag as Stephen Colbert buys similar URL
- CIA admits improperly hacking Senate computers in search of Bush-era information
- Israel surprised by Hamas tunnel network
- Obama military strategy too weak for future security, panel reports
- Report: 40% of weapons sent to Afghanistan are unaccounted for
Obama's biggest White House 'fails'
Celebrities turned politicians
Athletes turned actors
20 gadgets that changed the world