Not to raise debt limit risky for U.S. economy: Bernanke

U.S. Federal Reserve Chairman Ben Bernanke warned Thursday that the U.S. financial system may be destabilized again if the Congress would not raise the government debt limit.


"Using the debt limit as a bargaining chip is quite risky," Bernanke said when he testified before the Committee on Banking, Housing and Urban Affairs of the Senate.


The U.S. debt ceiling, which now stands at 14.29 trillion dollars, is expected to be hit early next week and the government still needs to borrow to finance its huge fiscal deficit.


Republicans in Congress have refused to raise the debt limit unless they can get the Obama administration and its Democratic supporters to agree to sweeping long-term spending cuts.


"It is a risky approach not to raise the debt limit in a reasonable time," Bernanke said. "At minimum the cost will be an increase in interest rates that will actually worsen our deficit."


"The worst outcome would be one in which the financial system was again destabilized... which of course would have extremely dire consequences for the U.S. economy," warned the central banker.


The mounting debt issue has become one of the key challenges that the U.S. is facing.


The U.S. public debt increased rapidly after the burst of the financial crisis and economic recession. The federal government deficit hit 1.41 trillion dollars in 2009 and 1.29 trillion dollars in 2010. It is expected that the figure in 2011 will reach another historic high because of the stimulus policies taken by the Obama administration.
(Source:http://news.xinhuanet.com)