Not raising the U.S. debt ceiling would be bad for the economy and would force the government to default on either its bonds or domestic programs, the top White House economist said on Thursday.
“It would not be good for the economy,” said Austan Goolsbee, chairman of the White House Council of Economic Advisers.
If the ceiling isn’t raised before early August, the government would have to default on its bonds, social security, Medicare or military pay, though he added it was impossible to say which one the United States would choose.
“Which of those do you default on, what kind of question is that?” he said.
The United States hit the debt limit on Monday, and the Treasury Department has said it can stave off a default until early August, at which point the country could face a default that could push the economy back into recession and roil markets across the globe.
Markets have, so far, shrugged off the threat. Goolsbee said that shows investors do not think the U.S. government will default.
Conservative Republicans, especially Tea Party activists, have refused to support an increase in the nation’s $14.3 trillion borrowing limit before winning budget concessions, including steep domestic spending cuts to reduce a deficit projected at $1.4 trillion this year.
Goolsbee said that the approach to deficit reductions embodied by proposals from Representative Paul Ryan, the top budget writer in the House of Representatives, “is not a balanced plan.”
Even so, Goolsbee said that economic growth in the short- and long-run was the most important issue, not the United State’s massive deficit or the debt limit.
Speaking at the Council on Foreign Relations, Goolsbee said it was time to focus on getting to a point where the government is no longer taking a major role in stimulating the economy but rather is finding ways to help the private sector lead the recovery. That includes shifting to policies such as streamlining the regulatory system and encouraging start-up businesses.
“That’s the only sustainable job creation we’re going to have. The only sustainable growth we’re going to have is going to come from the private sector,” said Goolsbee.
The beginnings of the recovery have been broad-based and have a healthy trajectory, Goolsbee said, though he noted there was still a long way to go before the conditions for growth were in place. The economy also faces some headwinds, including high gasoline prices and uncertainty surrounding the euro zone’s sovereign debt crisis.
Data earlier on Thursday suggested the economy is still on a moderate growth path as the number of Americans filing new claims for jobless benefits fell last week, but regional factory activity unexpectedly slumped in May.
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