Tags: Hoenig | Fed | Won’t | Help | US | Defaults

Hoenig: Fed Won’t be of Much Help if US Defaults

Thursday, 21 Jul 2011 11:54 AM

President Barack Obama and Congress need to strike a deal regarding the country's debt ceiling now, says Kansas City Federal Reserve Bank President Thomas Hoenig.

Failure to lift the $14.3 trillion debt ceiling is fueling uncertainty and fears of default, which is bad for the country.

The Federal Reserve has done all it can to support the economy and won't be much help should the country default.

"It's important that they come to an agreement. It's very important that we take care of this issue so that it doesn't put pressure on the Central Bank to enable this to go on indefinitely," Hoenig tells CNBC.

"To fail to act will only create more uncertainty and that, therefore, will adversely affect the economy."

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Thomas Hoenig
(Associated Press photo)
The Obama administration has said that unless Congress lifts the debt ceiling soon, the government could default on its bills by Aug. 2.

Lawmakers from both political parties say they don't want to see a default, but Republicans and Democrats are at odds over the role that tax hikes and spending cuts should play in return for lifting the government's borrowing limit.

Ratings agencies have said the U.S. could lose its AAA credit rating if it defaults.

Hoenig says that even going a couple of days beyond the deadline threatens the U.S. economy and financial system.

"Why do that? The question is to get the thing solved and not fool around with a couple of days this or a couple of days that," Hoenig says.

"There is a way to get this thing solved and you take care of it. If you wait, the uncertainty only grows."

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Six senators — half Democrats, half Republicans and known collectively as the "Gang of Six" — are drafting a plan that would get both parties on board to address the country's fiscal woes and lift the ceiling.

Yet in the House of Representatives, Speak John Boehner, an Ohio Republican, says nothing concrete is in the works.

"You know, there are ... lots of ideas out there from Democrats and Republicans," Boehner says, according to CNNMoney.

"But guess what? None of them have a majority."

Some say it will take a breach of the deadline to motivate lawmakers from both sides to cut a deal, including former Senator Judd Gregg, R-N.H..

"My gut tells me that we'll need a weekend of drama — maybe a weekend of the government not paying its bills — politicians need drama to make something happen," says Gregg, who today works for Goldman Sachs, according to Business Insider.

"As soon as Social Security checks don't go out, the politics will change. I suspect it'll take artificial drama to get closure past the House."

Gregg says the government stands a 50 percent chance of defaulting in some shape or form on its commitments.

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President Barack Obama and Congress need to strike a deal regarding the country's debt ceiling now, says Kansas City Federal Reserve Bank President Thomas Hoenig. Failure to lift the $14.3 trillion debt ceiling is fueling uncertainty and fears of default, which is bad for...
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2011-54-21
Thursday, 21 Jul 2011 11:54 AM
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