The US central bank chief has said that a debt default would be a disastrous 'self-inflicted wound' and that lawmakers must heed the downgrade warnings of ratings agencies.
Federal Reserve chairman Ben Bernanke warned the protracted battle in Congress over raising the debt ceiling, less than three weeks before the country's spending commitments could force it into default, was endangering its top-rated credit reputation.
'We're already seeing threats of downgrades from rating agencies,' Bernanke told the Senate Banking Committee.
'This is a tremendous asset of the United States - the quality and reputation of our Treasury securities - and we benefit from it with low interest rates,' he said in semi-annual testimony to Congress.
'So I would urge Congress to take every step possible to avoid defaulting on the debt or creating even any significant probability of defaulting on the debt.'
Ratings agency Standard & Poor's warned US lawmakers privately that it would downgrade the country's debt if the Treasury Department is forced to prioritise payments because Congress does not raise the debt limit, a congressional aide told Reuters news agency.
The warning undercuts an argument made by some Republicans that the country's credit rating would not be affected as long as the Treasury Department made debt service a priority over other obligations.
Earlier, Chinese credit ratings agency Dagong put US sovereign debt on negative watch for a possible downgrade, following a similar move by Moody's yesterday.....read on