Reuters: Bernanke: Deep Spending Cuts Could Derail Recovery

Bernanke: Deep Spending Cuts Could Derail Recovery
By Mark Felsenthal and Pedro Nicolaci da Costa

WASHINGTON
Jul 14, 2011

(Reuters) - Federal Reserve Chairman Ben Bernanke warned Congress on Thursday that overzealous cuts to government spending could derail an already fragile recovery and said a U.S. debt default could wreak financial havoc.

"I only ask ... as Congress looks at the timing and composition of its changes to the budget, that it does take into account that in the very near term the recovery is still rather fragile, and that sharp and excessive cuts in the very short term would be potentially damaging to that recovery," Bernanke told members of the Senate Banking Committee.

Congress and the White House are stalemated in talks on cutting the budget deficit, with Republicans seeking $2.4 trillion in spending cuts in exchange for agreeing to raise the $14.3 U.S. government borrowing limit. The U.S. Treasury has said it will run out of money after August 2 to pay all of the country's bills if the a deal is not reached to raise the debt ceiling.

On the second day of delivering the Fed's semiannual monetary policy report to Congress, Bernanke renewed his warning that a U.S. debt default would be devastating for the U.S. and global economies.

http://www.reuters.com/article/2011/07/14/us-usa-fed-idUSTRE76774Z20110714