The US Treasury Secretary has warned that a possible US debt default would cause œirrevocable damage” to the US economy.
Testifying before the Senate Finance Committee on the 10th day of a partial federal government shutdown, Jack Lew said Thursday that the continued brinksmanship over the debt limit risks unforeseen consequences in the financial markets, the Guardian reported.
Lew said Republicans are underestimating the dangers of a last minute deal and are triggering fear among investors that could quickly use up the remaining reserves the US Treasury has.
Typically, every week more than $100 billion of the US debt, known as Treasury bonds, is reissued as investors roll over their loans to the government. Normally, this is a routine process and does not increase the country™s $17 trillion debt. It refinances a portion of it.
Short term borrowing costs almost tripled Tuesday in a bond auction as investors were worried the interest and capital repayments could be missed.
Lew said a similar fear to roll over bonds expiring next week could mean a loss of $50 billion cash reserve at any point.
“If US bond holders decided that they wanted to be repaid rather than continuing to roll over their Treasury investments, we could unexpectedly dissipate our entire cash balance,” Lew said in written congressional testimony.
One week before the deadline when the government will deplete its ability to borrow money, Lew said “I very much fear that miscalculation is something that could have devastating consequences. It is impossible to predict with any degree of accuracy when we will run out of money.”
“Between October 17 and November 1, we have large payments to Medicare providers, social security beneficiaries, and veterans, as well as salaries for active duty members of the military,” Lew said. “A failure to raise the debt limit could put timely payment of all of these at risk.”
Some Republicans have accused Lew of exaggerating the consequences of hitting the debt limit, saying the damage would be manageable.
Republicans in the US House of Representatives are offering President Barack Obama a short-term fix to increase the government™s borrowing authority.
The International Monetary Fund (IMF) has cut its growth forecast for the US economy for this year and 2014.
œA failure to promptly raise the debt ceiling, leading to a U.S. selective default, could seriously damage the global economy,” the IMF has warned.
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Copyright: Press TV