US Federal Reserve chairman Ben Bernanke is warning politicians to raise America's's official debt
limit soon or risk destabilising the financial system.
With the cap expected to be hit on Monday and the government still needing to borrow to finance its huge fiscal deficit, Bernanke told a Senate panel: "Using the debt limit as a bargaining chip is quite risky."
"It is a risky approach not to raise the debt limit in a reasonable time," the top central banker said.
"At minimum the cost will be an increase in interest rates that will actually worsen our deficit.
"The worst outcome would be one in which the financial system was again destabilised ... which, of course, would have extremely dire consequences for the US economy."
Republicans in Congress have refused to raise the debt limit, which stands at $US14.29 trillion ($A13.39 trillion), unless they can get the White House and its Democratic supporters to agree to
sweeping long-term spending cuts.
The administration of President Barack Obama has said they could agree on cuts but they are also demanding some tax hikes to increase revenues.
On Friday the powerful Republican leader of the House of Representatives, John Boehner, drew a line in the sand over the issue, saying: "Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase."
"And with the exception of tax hikes - which will destroy jobs - everything is on the table.
"And the cuts should be greater than the accompanying increase in the debt limit authority the president is given. We're not just talking about billions here. We should be talking about trillions,"
said Boehner.
The limit will be hit next Monday, after this week's Treasury Department auction of $US56 billion ($A52.47 billion) in new debt is settled, according to a Dow Jones Newswires report.
But earlier this month Treasury Secretary Timothy Geithner said because government receipts were running higher than projected, and by cutting certain debt issues, the government could buy several weeks, to about August 2, before it would absolutely have to raise money over the current cap or risk defaulting on its debt.
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