US Treasury: Default would be ‘catastrophic’

US Treasury: Default would be ‘catastrophic’

Posted by EU Times on Oct 3rd, 2013   

 

The US Treasury has warned of catastrophic effects if a political stalemate over raising the government’s debt limit forces a US default on its obligations.

The federal government is expected to exhaust its cash reserves by October 17 and if US lawmakers do not reach an agreement to raise the nation’s debt ceiling, the government will not be able to pay its bills and will default on its legal obligations.

“In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth,” said the Treasury in a report on Thursday.
“Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse,” warned the Treasury.

According to Treasury Secretary Jack Lew, the nation’s current debt ceiling of $16.7 trillion will be reached by October 17. Lew has promised that he will have used up all extraordinary measures in order to stay below the debt limit by then. After October 17, the US government will have about $30 billion of cash on hand.

According to US law, the government cannot breach a certain debt limit and lawmakers must pass legislation to authorize the government to exceed that limit. If such legislation is not passed, the government cannot pay its bills.
Republicans are demanding the defunding or delaying of Obama’s signature Affordable Care Act, also known as Obamacare, in return for increasing the government’s ability to borrow more money.

However, President Barack Obama restated his opposition to any deals with congressional Republicans over raising the nation’s debt ceiling on Wednesday.

In an interview with CNBC, Obama said he will engage in negotiations with Republicans only after they agree to reopen the federal government and raise the nation’s debt ceiling.