The federal government must avoid damaging the nation’s economy and its credibility around the world with a first-ever U.S. default.  A debt default would have a catastrophic effect on the nation’s financial system and also deal a huge setback to New York City, Mayor Michael Bloomberg said on Tuesday. Hit the jump to read the rest of the story.

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“America’s good name and credit are just too important to be held hostage to Washington gridlock, and I hope that in the end cooler heads will prevail and an agreement will be reached quickly,” Bloomberg, a political independent, said in a statement.

Congress and President Barack Obama are squabbling over a compromise that would raise the country’s $14.3 trillion debt ceiling. Republican House of Representatives leaders oppose tax increases; Democratic Senate leaders are fending off cuts to Social Security and Medicare. The battle must be resolved by August 2 or the country will run out of money.

Geithner will not make a decision on his future at the U.S. Treasury until after the debt limit negotiations conclude, according to people familiar with his thinking. However, he has recently said he expects to remain in the job “for the foreseeable future.”

The Treasury has tried to call attention to the concerns that Wall Street and corporate chief executives have over a failure to raise the debt limit in time to avoid market turmoil.

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