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July 27, 2011 at 08:00 PM
The Financial Stability Oversight Council (FSOC) warns in its first annual report about the possible effects of the European sovereign debt crises and the risks posed by governmental budget imbalances of all kinds.
FSOC has included only three brief references to the possibility that the United States could begin defaulting on obligations Aug. 2 if President Obama and House Republicans fail to reach an agreement on lifting the statutory cap on U.S. government debt.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created FSOC to help federal regulators keep track of trends that could pose a threat to the stability of the U.S. financial system.
Obama administration officials have argued that a failure to raise the debt ceiling could be devastating.
“Failing to increase the debt limit would have catastrophic economic consequences,” officials at the U.S. Treasury Department say in a comment on the matter. “It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis.”
“It is vital to the stability of the U.S. financial system and the global financial system for the debt limit to be raised in a timely manner to avoid creating any risk of default on U.S. obligations,” FSOC officials say in a short paragraph at the end of the executive summary of the report, and they mention in a paragraph later in the report that current pricing of government debt implies that the market assumes Congress will raise the debt limit.
