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US govt. default: Pros and cons
Sun, 24 Apr 2011 14:24:40 GMT
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Federal Reserve Chairman Ben Bernanke
As US officials warn of "catastrophic consequences" of the government defaulting on its debt, critics say it would actually be a wake-up call for many politicians.

Federal Reserve Chairman Ben Bernanke said a failure to raise the debt ceiling would have "catastrophic consequences," adding that it would be "a recovery-ending event," Reuters reported.

US Treasury Secretary Timothy Geithner has forecast that the US will hit its debt limit ceiling of USD 14.3 trillion on May 16, which means that the government will no longer be able to legally borrow money for its federal spending

Geithner warned that if the government is prevented from borrowing, it would push interest rates higher and cause, "a financial crisis potentially more severe than the crisis from which we are only starting to recover."

While most politicians are calling for the raising of the debt ceiling, which would enable the US government to continue unsustainable borrowing and spending, some analysts believe that defaulting on its debt would force the US economic system to change course.

"Either way whether we raise it or don't raise it, we have a problem," said Richard K. Vedder, Senior Fellow of the Independent Institute, said of the US debt ceiling.

"There is a problem with debt ceiling. And there is a problem with American debt; it's way too high and raising it is creating further problems down the road," he told Press TV.

The government currently borrows about 42 cents for every dollar that it spends. It mostly borrows money by selling bonds to the public and other governments, in which it agrees to pay back the loan with interest and within a certain time.

The Democrats have openly blamed the high deficit on war funding and tax cuts that benefit the wealthy and an expensive prescription drug program, while the Republicans say the government spending on domestic programs is too high.

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