Bernanke: Failure to Raise Debt Ceiling Could Be 'Catastrophic'

"Beyond a certain point ... the United States would be forced into a position of defaulting on its debt. And the implications of that on our financial system, our fiscal policy and our economy would be catastrophic," Bernanke told club attendees.

Monetary/Economic Analysis: Bernanke linked his comments with a call for the Obama administration and Congress to put together a credible, substantive plan to cut the budget deficit.

Of course, the Fed chairman was careful not to comment in any way regarding the means the nation should use to cut the deficit (spending cuts and/or tax increases). That's a political question that the political process -- crystallized by the president and the Congress -- must resolve.

The United States is expected to approach the debt ceiling in late March or early April. Moreover, most experienced investors know what would like ensue if the U.S. does not raise the ceiling, and the U.S. Treasury subsequently loses its authority to borrow and pay the government's bills: the impact on the stock and bond markets, among other shock waves, would not be pretty.