By Peter Schroeder - 02/03/11 06:57 PM EST
Federal Reserve Chairman Ben Bernanke on Thursday warned of a catastrophe if the U.S. defaults on its debt.
Bernanke urged lawmakers not to use a pending vote on raising the nation's $14.3-trillion debt ceiling as a bargaining chip over the federal budget, and said a failure to raise the debt limit could "conceivably" lead to default and an economic catastrophe.
During a rare question-and-answer session at the National Press Club, Bernanke went to great pains to say the chances of the U.S. defaulting were remote. Nonetheless, he said this could occur if Congress does not raise the debt ceiling.
"The United States could conceivably ... be forced into a position of defaulting on its debt," he said.
The results of such a default would be "catastrophic," said Bernanke, using the same term Treasury Secretary Timothy Geithner has used in imploring Congress to raise the ceiling. Geithner in a Jan. 6 letter to lawmakers wrote that failing to act on the debt limit could lead to "catastrophic economic consequences."
Republicans have pushed back against Geithner's comments, calling them scare tactics. They've argued the Treasury has tools to avoid default even if Congress does not immediately raise the ceiling.
Bernanke's comments would seem to buttress Geithner's position. Bernanke was nominated by President George W. Bush to serve as Federal Reserve Chairman, and then re-nominated by President Obama. He and Geithner worked closely together on the government's response to the 2008 financial crisis, and both have come under criticism on Capitol Hill from both the left and the right.
Bernanke said he thought lawmakers should focus on the taxation and spending issues that make up the federal budget, but that the debt limit should not be used as a way to gain leverage in that discussion.
"I would very much urge Congress not to focus on the debt limit to be the bargaining chip in this discussion," he said. “The debt limit itself is something where we need to be very careful."
Although the Treasury currently estimates it will not reach the statutory debt limit until sometime in April or March, what to do with the limit has been a subject of heated debate on Capitol Hill. Some Republicans are arguing against a vote increasing the limit.
Republican leaders have acknowledged the limit will ultimately need to be raised, but are vowing that any support will need to be accompanied by major spending cuts.
Some GOP members are pushing for a debt-limit increase to be coupled with a balanced-budget amendment. And other conservatives are pushing legislation that they claim would allow the government to avoid default if the limit is reached.