Speaking at the University of Michigan on Monday, Federal Reserve Chairman Ben Bernanke urged the United States Congress to raise the debt ceiling and not use a possible default to make spending cuts to the federal budget.
Bernanke made the case that raising the debt ceiling does not create deficits and it does not initiate new spending. He did note that Republican and Democratic policymakers face a difficult time, but making certain decisions should not be subject to the debt ceiling.
“Not raising the debt ceiling is sort of like a family, which is trying to improve its credit rating, saying, ‘Oh, I know how we can save money – we won’t pay our credit card bills,” said Bernanke, a registered Republican who was first appointed by President George W. Bush in 2006. “The right way to deal with this problem is for Congress to do what it is supposed to do and what it needs to do.”
Although the Fed Chairman doesn’t believe Congress will get rid of the debt ceiling limit anytime soon, Bernanke argued that since the debt ceiling has no value to the nation it should be abolished immediately.
He attempted to clarify his remarks by stating that he doesn’t believe deficits and debt are a good thing “but the way to address it is to have a sensible plan for spending and a sensible plan for revenue.”
The U.S. officially hit the debt ceiling limit of $16.394 trillion on Dec. 31 and has surpassed the debt ceiling by more than $31 billion (at the time of this writing). As Economic Collapse News has reported, the Treasury Department has taken “extraordinary measures” to buy the federal government some time.
During the final press conference of his first term in the White House, President Barack Obama reiterated Bernanke’s stance and said the Republican leadership has no choice but to raise the debt ceiling. He also explained that raising the debt limit allows for the spending that Congress has already approved.
“While I’m willing to compromise and find common ground over how to reduce our deficit, America cannot afford another debate with this Congress over how to pay the bills they’ve already racked up,” the president said. “To even entertain the idea of this happening, of America not paying its bills, is irresponsible. It’s absurd.”
When he was a senator in 2006, Obama opposed raising the debt ceiling.
“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” said then-Senator Obama in a speech on the Senate floor. “Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.”
Senate Majority leader Harry Reid also warned against raising the debt limit as it would weaken the U.S. and the economy.
Exiting Treasury Secretary Timothy Geithner weighed in on the issue Monday when he said the U.S. could default on its obligations as early as the middle of February. Geithner, who is being replaced by Jack Lew, warned that defaulting and not paying its bills would be economically damaging.
“Default would increase our borrowing costs and damage economic growth and therefore add to future budget deficits, not decrease them,” said Geithner. “This is why no President or Secretary of the Treasury of either party has ever countenanced even the suggestion of default on any legal obligation of the United States.”
In response to the president’s comments, Republican Speaker of the House John Boehner noted that he understood the realities and consequences of the debt ceiling “but so too are the consequences of allowing our spending problem to go unresolved.”
Senate Democratic leaders have announced that they plan to introduce legislation next month that would give the executive branch the full authority to raise the debt ceiling on its own at the present time and in the future. Many members on the opposite side of the aisle have vowed to fight against such a proposal.
This month, there have been ideas floating around to address the debt ceiling and bypass the Congress. One idea was to mint a $1 trillion platinum coin, which was shot down by the Treasury and Bernanke on Monday. The second concept was to sell its gold at Fort Knox, which was also rejected by Geithner.