Treasury chief warns of new world if U.S. defaults on any bills

WASHINGTON, April 25 Thu Apr 25, 2013 3:27pm EDT

WASHINGTON, April 25 (Reuters) - 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 on Thursday.

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 on Thursday that failure to smoothly raise the U.S. debt ceiling could do serious damage to the global economy.

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Comments (2) wrote:
The Goverment is run by rich fools. We will default since we continue to spend more than we take in. This is a total Washington failure. Soon we will all pay severely. Washingtonwwill be to blame in the end. Socialism does not work.

Apr 28, 2013 11:10am EDT  --  Report as abuse
breezinthru wrote:
I can scarcely believe that America has elected leaders who are so ignorant of legal and market fundamentals that they require this kind of instruction.

The most powerful nation on earth seems to have a fairly large faction of “Snuffy Smiths” in its House of Representatives.

Apr 29, 2013 8:44am EDT  --  Report as abuse
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