Letter to Ben Bernanke, Chair of the Federal Reserve and Timothy Geithner, Secretary of the US Department of the Treasury - Economic Consequences of Failing to Extend the Debt Limit

Letter

Dear Chairman Bernanke:

I write to request that to the extent it is practicable, the Federal Reserve provide a projection of the economic and fiscal consequences of failing to extend the debt limit if the United States government were to exceed the current limit.

At a recent Senate Banking Committee hearing, you testified that the failure to extend the debt limit would be "extremely dangerous" and "very likely a recovery ending event." You further indicated that a default would "almost certainly create a new financial crisis." Similarly, in a January 6 letter to Congress, Secretary Geithner warned that a "[d]efault would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs."

While both you and Secretary Geithner have underscored the grave dangers associated with a default, I believe that specific data detailing the consequences of a default would help inform Congress' deliberations about the issue. It is therefore my hope that the Federal Reserve can attempt to quantify the fiscal and economic consequences of such a decision. Specifically, it would be helpful if the Federal Reserve could project how a default would affect:

* our nation's gross domestic product;
* the unemployment rate;
* interest rates;
* the federal government's current deficit; and
* the national debt.

I understand that any projections would vary depending upon the period of the default and that the Federal Reserve would have to account for such variables in its estimates. I nonetheless believe that such projections would assist Congress as it deliberates a future extension of the debt limit and a broader deficit reduction package.

Ultimately, Congress must have an opportunity to debate a comprehensive deficit reduction proposal in the near future. As you have indicated, our current fiscal path is unsustainable. The consequences of failing to act aggressively to contain our debt will diminish economic opportunities for future generations of Americans. I hope that an informed debate over the debt limit will serve as a necessary catalyst to approach our fiscal problems in a comprehensive and responsible manner.

I will make the same request of Secretary Geithner. Thank you in advance for your consideration.

If you have any questions regarding the foregoing, please do not hesitate to contact me.

Dear Secretary Geithner:

I write to request that to the extent it is practicable, the Treasury Department provide a projection of the economic and fiscal consequences of failing to extend the debt limit if the United States government were to exceed the current limit.

At a recent Senate Banking Committee hearing, Chairman Bernanke testified that the failure to extend the debt limit would be "extremely dangerous" and "very likely a recovery ending event." He further indicated that a default would "almost certainly create a new financial crisis." Similarly, in a January 6 letter to Congress, you warned that a "[d]efault would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs."

While both you and Chairman Bernanke have underscored the grave dangers associated with a default, I believe that specific data detailing the consequences of a default would help inform Congress' deliberations about the issue. It is therefore my hope that the Treasury Department can attempt to quantify the fiscal and economic consequences of such a decision. Specifically, it would be helpful if the Treasury Department could project how a default would affect:

* our nation's gross domestic product;
* the unemployment rate;
* interest rates;
* the federal government's current deficit; and
* the national debt.

I understand that any projections would vary depending upon the period of the default and that the Treasury Department would have to account for such variables in its estimates. I nonetheless believe that such projections would assist Congress as it deliberates a future extension of the debt limit and a broader deficit reduction package.

Ultimately, Congress must have an opportunity to debate a comprehensive deficit reduction proposal in the near future. Our current fiscal path is unsustainable and the consequences of failing to act aggressively to contain our debt will diminish economic opportunities for future generations of Americans. I hope that an informed debate over the debt limit will serve as a necessary catalyst to approach our fiscal problems in a comprehensive and responsible manner.

I will make the same request of Chairman Bernanke. Thank you in advance for your consideration.

If you have any questions regarding the foregoing, please do not hesitate to contact me.

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