GOT CASH?It's already starting....
Watch out folks, this could be the black swan event of 2011.Catastrophic? That doesn't even begin to describe what would happen. Question is is cash or gold the better option. Equities, even CAN would be hit HARD, VERY HARD.
WASHINGTON - A top Federal Reserve official onMonday warned that Congress was playing with fire by not raising thecountry's legal borrowing limit in a timely fashion.
RichmondFed President Jeffrey Lacker echoed Fed Chairman Ben Bernanke's worriesthat a failure to do so before the last possible date of August 2 couldhave catastrophic consequences.
"Ido share the chairman's concern that going up to the edge and playingchicken on the debt ceiling is not a wise strategy," Lacker told Reutersin an interview.
Ina week, the United States is due to hit the $14.294 trillion debt limitthat caps the amount the country is legally allowed to borrow.
Adelay in raising the debt ceiling could cause widespread damage acrossmarkets and hurt U.S. growth if it led to a technical default, but thissituation is unlikely, according to a JPMorgan report last month.
Congressis nowhere close to brokering a deal to raise the ceiling, forcing theU.S. Treasury to start moving funds around to meet governmentobligations.
Lackersaid those measures have already had a "somewhat disruptive effect" onthe short term financing markets. "The lack of supply of short-termTreasury bills has disrupted the (repo) market to some extent," he said.
Treasuryhas a number of tools it can use to give the government room to meetits obligations, including paying interest on U.S. debt. But thosemeasures will only allow the government to borrow until August 2.
Republicanand some Democratic lawmakers are unwilling to authorize more borrowingunless it is accompanied by strict reforms to government spending andplans to slash the $1.4 trillion deficit.
Theroughly three-month window will give the Obama administration andCongress some time to negotiate a deal, but Lacker, Bernanke andTreasury Secretary Timothy Geithner have told Congress not to take ittoo close to the edge.
"Idon't think it's a situation where everything is fine until some day.Things are being disrupted already because of the lack of action on thedebt ceiling," Lacker said.
"Thelegislators I know in my district are pretty smart people. I trust it'sfairly obvious to them, that the longer you go, the more you're reallykind of playing with fire here, because of the potential for adversefinancial market reactions to brinkmanship," he said.
Lacker said he is not lobbying Congress on the debt ceiling, unlike the business community and Wall Street.
Copyright 2011 Reuters.