Default on some U.S. bills would be 'dangerous gamble': CBO chief

WASHINGTON Thu Sep 26, 2013 11:38am EDT

WASHINGTON (Reuters) - Failure by the United States to pay some of its bills if Congress fails to raise the $16.7 trillion debt limit by mid-October would erode confidence and cause economic damage, the head of the Congressional Budget Office said on Thursday.

"Defaulting on any obligation of the U.S. government would be a dangerous gamble. In a very uncertain world, the one thing everyone has been able to count on is that the U.S. government will pay its bills on time," CBO director Doug Elmendorf told the House Budget Committee.

Many Republicans in the House of Representatives have proposed that if the debt limit is not raised, the government could prioritize its payments to ensure that principal and interest on federal debt is paid first from available tax revenue. This would allow the government to delay payment of other obligations.

Such prioritization language has been included in a House-passed measure to keep the government funded past the end of the fiscal year on Monday.

The U.S. Treasury has said choosing which bills to pay in lieu of increasing the debt limit is unworkable because financial markets would treat any missed payment as a default.

Elmendorf called this a "very risky" strategy because there was no precedent and financial market reaction might be very unpredictable.

"It might be that the financial system and the economy would respond differently to default on different kinds of obligations, but economists don't have a basis for making analytical predictions, as we don't have experience with this," Elmendorf said.

(Reporting by David Lawder; Editing by James Dalgleish)

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