Bair warns of "dangerous game" in debt talks

Reuters News
Posted: Jun 30, 2011 3:49 PM
Bair warns of "dangerous game" in debt talks

WASHINGTON (Reuters) - U.S. bank regulator Sheila Bair on Thursday said lawmakers are playing a "dangerous game" by raising the possibility that the debt limit will not be raised by August.

Bair, the outgoing chairman of the Federal Deposit Insurance Corp, said that markets could be spooked before that date if they are not convinced the debt limit will be raised, which could raise the government's borrowing costs.

"Why even go there? Why even flirt with it?," she told the Senate Banking Committee on Thursday.

Congress must raise the $14.3 trillion debt ceiling by August 2 to avoid a default that could push the United States back into recession and send financial markets plummeting.

There has been no progress since talks collapsed last week over tax increases Democrats want to include in a spending-cut package that would make it easier for lawmakers to sign off on further borrowing.

The White House believes a deal needs to be in place by July 22 to give Congress enough time to pass it, according to Democratic officials familiar with the talks.

Budget deficits in recent years have hovered near their highest levels relative to the size of the economy since World War Two. Experts warn that the United States could face a Greek-style crisis if it does not slow the growth of its debt.

(Reporting by Dave Clarke; Editing by James Dalgleish)