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.
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