June 24, 2019

Bernanke warns US may “renege on payments”

Ben Bernanke acts out US Congress Economic idea #42 - maybe if we don't look at the debt it might just disappear.

Ben Bernanke, Chairman of the US Federal Reserve has spoken out about his concerns about the future of the United States international credit rating.

He has warned that if the borrowing limit is not raised, then the US might lose its AAA credit rating.

Congress has been arguing whether or not to lift the $14.3 trillion debt ceiling. If they do not sort something out then as soon as August 2011, the US might start “defaulting on obligations”.

Mr Bernanke said he understood the desire of many politicians to use the deadline to force some necessary and difficult policy adjustments, but said the debt limit was “the wrong tool for that important job”.

“Failing to raise the debt limit would require the federal government to delay or renege on payments for obligations already entered into.”

“Even a short suspension of payments on principal or interest on the treasury’s debt obligations would cause severe disruptions in financial markets and the payments system.”

The US government currently runs a $1.5tr budget deficit, requiring it to issue debt in the form of treasury bills, bonds and other securities.

Public debt was $14.3 trillion on 31st May 2011, up from $10.6 trillion when Mr Obama took office in January 2009.

Vice-President Joe Biden and congressional leaders have resumed efforts to find a bipartisan solution.

They are trying to reach an agreement that would tie spending cuts with an increase in the debt limit. They are expected to discuss annual spending levels, budget process reforms, taxes and healthcare benefits.

“We’re making real progress, we’re down to the tough stuff now and everybody’s still in the room,” Mr Biden said after Tuesday’s meeting.

Yes Joe and has anyone noticed the elephant in the room in the form of an obscene level of debt. The US Congress has voted to raise the debt ceiling 10 times since 2001.

Maybe, just maybe chaps we could consider adjusting the American economy to live within its means.

The US government has maxed out its credit card. Instead of adjusting their spending they have made a habit of just raising their credit limit (here more about that).

George W Bush started the rot in the last decade with his expensive war mongering. President Obama was forced to inject money America didn’t have to keep the economy afloat in the credit crisis.

If the US carries in it’s denial of fundamental problems with its economy then they will end up sooner rather than later having to get bailed out by the Chinese. Oh wait that has already happened.