Bernanke likes Toomey's debt-limit bill -- to a point 

Federal Reserve Chairman Ben Bernanke likes the idea of a bill that would prioritize debt repayment over other government expenditures, although not necessarily in lieu of raising the current debt limit, The Hill reports.

Sen. Pat Toomey, R-Pa., and Rep. Tom McClintock, R-Calif., have proposed a bill to do just this, as a way of avoiding raising the debt limit. Bernanke said that such a measure could help over the long run because it would avoid annual crises over a national default, although in the short term it might be difficult to implement. He added that deficit reduction is the most important thing on his wish list:

Federal Reserve Chairman Ben Bernanke told the House Budget Committee Wednesday that a GOP bill to prioritize payments if Congress decides not to raise the nation’s debt ceiling could be helpful.

Bernanke stressed, however, that he would prefer Congress to enact a long-term deficit-reduction plan without threatening to preserve the $14.3 trillion limit.

That limit is set to be reached this spring, and Bernanke warned that under current law, not raising the limit risks defaulting on interest payments to Treasury bonds. That would lead to an immediate financial crisis, he said, and once the United States emerges from that, it would lead to years of higher interest payments that would balloon the size of the debt.

“Well, it would reduce the risk of the debt limit, that’s for sure,” Bernanke said of the bill.

He said that it would take “some time to put systems in place” to make the prioritization work.

“You need some notice to make that practical,” he said. The Fed acts as a payment service for the Treasury, and currently it does not have the computer systems in place to distinguish between bond interest payments and other payments.

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David Freddoso

David Freddoso came to the Washington Examiner in June 2009, after serving for nearly two years as a Capitol Hill-based staff reporter for National Review Online. Before writing his New York Times bestselling book, The Case Against Barack Obama, he spent three years assisting Robert Novak, the legendary Washington... more
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