A crisis of confidence in U.S. bond markets is likely, and indeed will be required, to galvanize Congress into raising the country's debt ceiling, a former senior White House aide said Thursday.
"We are going to deal with the problem when we have significant external pressure to do so," said Peter Orszag, who stepped down as White House budget chief last year.
The United States reached the congressionally mandated $14.3 trillion limit on its borrowing on May 16.
Vice President Joe Biden is meeting on Capitol Hill with a bipartisan panel of senior lawmakers Thursday in his latest round of talks to craft a deal to lift the ceiling.
Administration officials are using special accounting measures to avoid a default but warn their leeway to do that will run out on Aug. 2.
"If we roll into July, and all of a sudden there is a little bit of panic caused by (concern)... an agreement won't be reached, then we have a 25 or 50 basis point movement in Treasury yields in a day or two, that is the kind of force that I think will be required," Orszag told a Peterson Institute for International Economics luncheon on healthcare costs.
Orszag, now vice chairman at global banking at Citigroup in New York, said the reason bond yields have remained low so far despite the debt ceiling risk was partly due to the status of the U.S. Treasury market as a global investor safe haven.
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