Fed says US must heed warnings from debt raters

Federal Reserve chairman Ben Bernanke warned lawmakers against a protracted battle over raising the debt ceiling © AFP/Getty Images Mark Wilson

AFP

WASHINGTON (AFP) – The US central bank chief said Thursday that a debt default would be a disastrous “self-inflicted wound” and that lawmakers must heed the downgrade warnings of ratings agencies.

Federal Reserve chairman Ben Bernanke warned the protracted battle in Congress over raising the debt ceiling, less than three weeks before the country’s spending commitments could force it into default, was endangering its top-rated credit reputation.

“We’re already seeing threats of downgrades from rating agencies,” Bernanke told the Senate Banking Committee.

“This is a tremendous asset of the United States — the quality and reputation of our Treasury securities — and we benefit from it with low interest rates,” he said in semiannual testimony to Congress.

“So I would urge Congress to take every step possible to avoid defaulting on the debt or creating even any significant probability of defaulting on the debt.”

His comments came after Moody’s late Wednesday warning that it may cut the triple-A US credit rating because of rising prospects the US debt limit will not be raised in time to avoid default.

China’s Dagong credit ratings agency echoed Moody’s action Thursday by putting US sovereign debt on downgrade watch.

China is by far the biggest foreign holder of US Treasury securities, at $1.275 trillion at the end of April, according to the Treasury.

Bernanke said a debt default would provoke a major economic crisis and risk a second recession.
“It would be a self-inflicted wound,” he said.

The US debt ceiling now stands at $14.3 trillion and the budget deficit is expected to hit $1.6 trillion this year.

© AFP — Published at Activist Post with license