President Barack Obama warned on Tuesday there could be another global financial crisis if the US Congress failed to raise the national debt ceiling, according to Moneycontrol.com. But in an interview with NBC’s “Today” show, Obama also said he took Republican leaders at their word that they want to avoid such a situation and he expects a deal to increase the debt limit “in a sensible way.”
“The full faith and credit of the United States is the underpinning not only of our way of life, it’s also the underpinning of a global financial system. We could actually have a reprise of a financial crisis, if we play this too close to the line. So we’re going be working hard over the next month,” he said.
Also on Tuesday Federal Reserve chairman Ben Bernanke renewed his calls to Congress to stop holding the debt ceiling hostage. “I fully understand the desire to use the debt limit deadline to force some necessary and difficult fiscal policy adjustments, but the debt limit is the wrong tool for that important job,” the Federal Reserve chairman said at the annual conference for the Committee for a Responsible Federal Budget in D.C. on Tuesday, CNN reports. Republicans have recently tried to tie a debt ceiling increase to spending cuts, as well as completely unrelated proposals.
But if the debt ceiling is not raised, Bernanke said, the United States would be forced to stop payments on some of its existing obligations, possibly including Social Security and military pay. The creditworthiness of the United States would be called into question and the financial markets could be severely disrupted, Bernanke said.
“Failing to raise the debt ceiling in a timely way would be self-defeating if the objective is to chart a course toward a better fiscal situation for our nation,” he said. That said, Bernanke was also firm in his call for Congress and the Obama administration to hurry up and agree on a long-term strategy for bringing the country’s balance sheet back into the black. The speech reflected one of the core struggles currently facing Congress as it debates how to deal with the nation’s $14 trillion deficit. On the one hand, it’s clear that lawmakers need to quickly agree on a plan to get the nation out of debt. But the economy is still on shaky ground following the worst recession since the Great Depression. Many economists – including Bernanke – say drastic budget cuts now could make it harder for the U.S. to recover.