May 12, 2011

WASHINGTON (AFP) – US Federal Reserve chairman Ben Bernanke warned politicians Thursday to raise the country’s official debt limit soon or risk destabilizing the financial system.

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With the cap expected to be hit Monday and the government still needing to borrow to finance its huge fiscal deficit, Bernanke told a Senate panel that “using the debt limit as a bargaining chip is quite risky.”

“It is a risky approach not to raise the debt limit in a reasonable time,” the top central banker said.

“At minimum the cost will be an increase in interest rates that will actually worsen our deficit,” he said.

“The worst outcome would be one in which the financial system was again destabilized… which of course would have extremely dire consequences for the US economy.”

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