WASHINGTON (AP) - The International Monetary Fund warned U.S. lawmakers Wednesday that a failure to raise the nation's borrowing limit would pose serious risks to the global economy and financial markets.
The U.S. last month reached its $14.3 trillion borrowing limit. The U.S. Treasury has said that it can keep the country operating for a couple months by employing various bookkeeping maneuvers. But if Congress doesn't raise the borrowing limit by Aug. 2, the country will default on its debt.
John Lipsky, acting managing director of the IMF, said a default "would have very serious and far-reaching consequences." It would rattle markets and send interest rates soaring, making mortgages and other consumer loans more expensive. Lipsky expressed confidence that Congress will reach a deal before that happens.
A sharp divide among lawmakers over how to rein in the federal budget deficit has kept Congress from raising the borrowing limit. Republicans want President Barack Obama and Democrats to agree on spending cuts equal to any increase in the borrowing limit. Democrats say the deficit-reduction deal must also include some tax increases.
The IMF said enacting steep spending cuts or tax increases too quickly could hamper the U.S. recovery. It advocated raising the borrowing limit and implementing a long-term deficit-reduction strategy.
President Obama on Wednesday said that eliminating selected tax breaks for oil companies and the super-wealthy must be part of any deficit reduction plan.
He also said that a bipartisan agreement is possible to cut deficits, raise the government's debt limit and avert a threatened financial crisis.
Obama said both Democrats and Republicans must be prepared to "take on their sacred cows" as part of the deficit-reduction negotiations.
Republicans say they will not support any proposal that raises taxes.