FDIC Chair: Government Default Would be 'Calamitous'

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Approximately one month after Treasury Secretary Timothy Geithner expressed confidence lawmakers would raise the government's $14.3 trillion debt ceiling, lawmakers have yet to reach a deal.

Meanwhile, some have sounded the alarm about the danger of Uncle Sam defaulting on its payments to investors.

The outgoing chair of the FDIC told Congress she is concerned about the U.S debt, but added that she felt "just as strongly that a technical default on U.S. government obligations would prove to be calamitous."   

"Investor confidence in Treasury obligations is absolutely vital to domestic and global financial stability and cannot be taken for granted," FDIC Chairwoman Sheila Bair told lawmakers Thursday.
    
Geithner has voiced similar concerns.

"We'd tip the U.S. economy and the world economy back into recession, depression," he warned. 
    
Some senators say such fears are overblown.

They reason that even if the debt ceiling isn't raised, it will still have enough on hand to make interest payments on U.S. Treasury securities to investors from America to China and avoid a default - at least for now.
    
Raising the credit limit is a point of serious political contention in Washington at the moment.

"We all know what the problems are. Why don't we just deal with them? No more kicking the can down the road. No more whistling past the graveyard," House Speaker John Boehner, R-Ohio, said.

Republicans have long said they will not agree to raise the ceiling unless the Democrats go along with serious spending cuts.
    
And Reuters reports that bipartisan talks on raising the credit limit have run into a roadblock since Democrats won't cut government spending on health programs if Republicans won't consider raising taxes.

"Don't play games with the debt ceiling," Rep. Sander Levin, D-Mich., admonished his colleagues. "We have to act. We can't tie it to anything because if our credit goes bad, it has catastrophic implications."

For now, the politicians are still talking, not acting. Some believe they'll keep talking right up until the Aug. 2 deadline before they reach an agreement.

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