Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

FDIC chief: 'Urgent action' needed on debt

By Charles Riley, staff reporter


NEW YORK (CNNMoney.com) -- FDIC Chairman Sheila Bair believes "urgent action" is needed to lower government debt and forestall the next financial crisis, according to an op-ed piece published Friday.

"Even as work continues to repair our financial infrastructure and get the economy moving again, we need urgent action to forestall the next financial crisis," Bair wrote in the Washington Post. "I fear that one will start in Washington."

Citing a sharp increase in federal debt, which is now approaching $14 trillion, Bair argued that "relentless federal borrowing" will eventually "directly threaten our financial stability."

"This explosive growth in federal borrowing is a result of not just the financial crisis but also government unwillingness over many years to make the hard choices necessary to rein in our long-term structural deficit," she writes.

As a result, Bair warned that the U.S. Treasuries could be in danger of losing their status as a safe-haven investment in troubled times, with dire implications for the financial system as a whole.

"If investors were to similarly lose confidence in U.S. public debt, we could expect high and volatile interest rates to impose losses on financial institutions that hold Treasury instruments," she wrote. "All of us would pay more for consumer and business credit, and our economy would suffer."

Fixing the problem requires a bipartisan plan to cut spending and increase taxes over many years, Bair said, and she offered an endorsement of recent proposals by the co-chairs of President Obama's fiscal commission and by the Bipartisan Policy Center as "credible first steps."

Those plans have been met with a lukewarm reception in Washington, but Bair argued that they are needed.

"Most of the needed changes will be unpopular, and they are likely to affect every interest group in some way. We will want to phase in these changes as the economy continues to recover from the effects of the financial crisis," she wrote. To top of page

Index Last Change % Change
Dow 24,651.74 143.08 0.58%
Nasdaq 6,936.58 80.06 1.17%
S&P 500 2,675.81 23.80 0.90%
Treasuries 2.36 0.01 0.38%
Data as of 12:35am ET
Company Price Change % Change
Bank of America Corp... 29.04 0.31 1.08%
General Electric Co 17.82 0.18 1.02%
Oracle Corp 48.30 -1.89 -3.77%
Micron Technology In... 42.40 0.16 0.38%
Microsoft Corp 86.85 2.16 2.55%
Data as of Dec 15
Sponsors

Sections

More than 5% of DACA recipients have started their own businesses since enrolling the program, according to a recent survey. More

Republicans said their plan would make taxes easy to prepare, and indeed the final bill gets points for some simplification. But the whole story, like the tax code, is more complex. More

Uber is being sued by Waymo, Alphabet's self-driving car unit that was formerly part of Google. Waymo alleges that Uber stole trade secrets about its self-driving technology. More

Homeowners would be able to deduct interest on the first $750,000 of a new mortgage under the final tax bill -- down from the current $1 million threshold. More