Friday, July 22, 2011

Federal Reserve starts planning for US debt default

The Federal Reserve has started making contingency plans should the US government default on its debt as talks over raising the debt ceiling continue to drag on.

The United States will not be able to pay all its bills unless the $US14.3 trillion ($13.2 trillion) ceiling is raised by August 2. Financial regulators are working through the possible consequences, a Federal Reserve official said.

''We are in contingency planning mode,'' Charles Plosser, president of the Philadelphia Federal Reserve Bank, told Reuters. ''We are all engaged … It's a very active process.''
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Despite repeated warnings of the financial disruption that is likely to follow a default, the White House, and both parties in Congress, appeared no closer to striking a deal as the week drew to an end.

On Thursday the President, Barack Obama, and the House Speaker, John Boehner, rushed to strike agreement on a far-reaching plan to reduce the national debt but faced a revolt from Democrats furious that the accord appeared to include no provision to raise taxes.

With 12 days left until the Treasury begins to run short of cash, Mr Obama and Mr Boehner were closing in on the most ambitious plan to restrain the national debt in at least 20 years. Talks focused on cuts in agency spending and politically painful changes to cherished health and retirement programs aimed at saving roughly $3 trillion over the next decade. (more)