* Don't "play games" with markets on debt, Johnson says
* Acting soon on debt ceiling "essential," Desai says
* Bachmann holds firm against raising debt ceiling
By Kevin Drawbaugh
WASHINGTON, July 13 No one knows exactly what
would happen in a U.S. government debt default, but economists
agreed on Wednesday that it would be best not to find out.
"You cannot play games with something this serious," Simon
Johnson, former chief economist of the International Monetary
Fund, said at a congressional hearing.
"Other countries that have tried to play these kinds of
games with the financial market usually end up getting burned.
"Why would you want to take that risk?" asked Johnson, now
a professor at the Massachusetts Institute of Technology.
At a time of sluggish economic recovery and fragility in
global financial markets due to the EU debt crisis, economists
at the hearing stressed the importance of the United States
remaining a safe haven for international investors.
Nevertheless, with an Aug. 2 default deadline nearing and
no debt ceiling deal in sight, some Republicans on Wednesday
again displayed a willingness to roll the dice on default.
Republican Representative Louie Gohmert called for an end
to "fearmongering" over possible delays in Social Security and
other benefit payments from a default.
Representative Michele Bachmann, seeking Tea Party support
in her bid for the Republican presidential nomination, said
again that she would vote against raising the debt ceiling.
President Barack Obama and congressional leaders gathered
for a fourth day in a row on Wednesday in search of a deficit
deal that would allow an agreement on raising the debt
Harvard University Law and Finance Professor Mihir Desai
said at the hearing that federal payments could stop in a
default, which he said would be "extremely problematic."
"But it can also become a broader manifestation of a system
that appears broken to the rest of the world and that is where
we run into significant problems," he said.
"I think it's very important that this particular deadline
is not ignored. It is essential that we act now."
Desai and Johnson appeared as witnesses at an unusual joint
hearing of the Senate Finance Committee and the tax-writing
House of Representatives Ways & Means Committee.
The session was primarily focused on aspects of a possible
comprehensive tax reform in the near future, but questions
about the debt ceiling debate arose repeatedly.
"There's a big elephant in this room and it's called debt
ceiling," said Democratic Representative Charles Rangel.
"Until we get that out of the way, it will be impossible
for us to, in a bipartisan way, deal with" tax reform.
(Additional reporting by Andy Sullivan; Editing by Cynthia