WASHINGTON - with the Government to hit its limit 14.3 billion of debt, Secretary of the Treasury Timothy Geithner has warned of "catastrophic" consequences and a new recession if Washington is not in a position to borrow more.
A divided Congress a short of time to raise the debt limit before the Monday deadline, forcing Geithner in a reallocation of funds emergency so that the Government can meet its obligations, including payments to holders of Treasury bonds.
These measures should only to give the Government until August 2, before it will start by default on payments, including those on the debt of the Treasury, an event which could trigger chaos in the financial markets.
Geithner, "a defect would be inflicting catastrophic damage, far-reaching on the economy of our country, significantly reduce the growth and the increase in unemployment," said in a letter dated Friday, to Democratic Senator Michael Bennet.
The Obama administration and legislators are fighting on ways to curb the increase in U.S. debt, with Republicans refusing to increase the limit of debt without deep reductions in spending.
In some of its more austere language to the legislators for the moment, Geithner declared a default value or missed payments would not only increase the cost of borrowing the US Government, but also for average Americans, businesses and local governments.
"An increase in the rate of the Treasury make more expensive for a family to buy a House, buy a car or send a child to College," he said. "It would make more expensive for an entrepreneur to borrow money to start a new business or invest in new products and equipment".
Largest economy in the world is recovering after the crisis financial 2007-09 but some 13.7 million Americans are work and higher gasoline and food prices threaten to slow down the recovery gradually.
If Congress does not increase the ceiling of the loan by August, Geithner is forced to choose payments than to first begin.
Missing or delaying payments on a host of obligations, including those for goods and services business and the payments of bond investors, would result in a massive and brutal reduction in spending from the Federal Government and aggregate demandthe letter warned.
"The abrupt contraction would probably be we grow in a recession," said Geithner.
U.S. Government bond market remained calm on the risk of failure for the moment. But Geithner and Federal Reserve Chairman Ben Bernanke have repeatedly asked Congress to act quickly to increase the debt limit.
The United States Government is borrowing of approximately 125 billion per month. Thursday, the country was $ 38 billion below the ceiling of the debt.
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