The United States might run into trouble accessing debt markets if it
defaulted on any of its financial obligations, even if it were able to
keep up payments on government bonds, Treasury Secretary Jack Lew told
Congress.
Lew was responding to questions about a bill in the U.S. House of
Representatives that would prioritize payments on government bonds and
Social Security if the United States hits its debt limit, in order to
avoid a credit default.
If passed, the law would make it easier for Republicans to use a
fight over the nation's legal borrowing limit, known as the debt
ceiling, to try to extract spending cuts from President Barack Obama.
"The thing I would urge you to consider is, you enter a world we've
never been in once the United States is not meeting its obligations,"
Lew told a House subcommittee. "We cannot assume markets will function
in an orderly way if that (happens)."
The current suspension of the debt limit expires on May 19, although
the Treasury can use emergency cash-management measures to push off the
day of reckoning into August. The date could fall even further in the
future given unexpectedly strong tax revenues and the possibility of a
big payment to the Treasury from housing finance giants Fannie Mae and
Freddie Mac.
Lew has said it is impossible to try to pinpoint when exactly the use
of these emergency maneuvers would be exhausted due to a delayed tax
filing season and uncertainty about the effect of steep government
spending cuts known as the sequester.
Once the United States reaches its debt limit, the government faces
the prospect of defaulting on financial obligations, and potentially its
debt, which could shake up markets and damage the economy.
Staff at the International Monetary Fund warned that failure to
smoothly raise the U.S. debt ceiling could do serious damage to the
global economy.
© 2013 Thomson/Reuters. All rights reserved.
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