Treasury secretary warns about government default on national debt

WASHINGTON (AP) Congress needs to extend the government's authority to borrow or risk defaulting on the national debt, which would cloud U.S. securities, Treasury Secretary Paul O'Neill said Wednesday.

O'Neill made his latest pitch for swift congressional action on raising the debt ceiling in a speech to Republicans gathered at the Capitol Hill Club.

He has repeatedly asked Congress to boost the debt ceiling by $750 billion, but the request has become stuck in a political fight over the budget. The limit now stands at $5.95 trillion.

Treasury last week said it can shift some funds to avoid hitting the debt ceiling in mid-May. But those maneuvers won't be useful in late June, raising the prospect of a default on payments to bondholders.

''If we run into the ceiling that's really bad,'' O'Neill said in remarks to the Republican Main Street Partnership. ''Because world capital markets will say they knew they needed to do it and they've know for six months that they needed to do it and they didn't do it and that casts a shadow on the good faith and credit of the United States.''

If the government were to miss payments on debt coming due, it would be technically in default on the $5.95 trillion national debt. That would cast a cloud over U.S. securities, now considered the world's safest investment, and would mean the government would be forced to pay billions of dollars in higher interest payments on the national debt in future years.