By David A. Kaplan
FORTUNE -- Larry Summers, the former chief economics adviser to President Obama and former Treasury secretary in the Clinton administration, told Fortune last night that a default on government financial obligations "is not an experiment we should ever run."
As Congress continues to debate legislation to avert default that the government says will occur tomorrow, Summers dismissed any notion that failure to pay bondholders on a timely basis, and to meet other financial obligations, was an overstated risk. "The U.S. has benefitted from having the most trusted and liquid securities market in the world," he said. "Even a small slip-up undermines that."
Nor should anyone countenance the idea that the Treasury could somehow prioritize its obligations to make sure bondholders got paid first. "There are major computer systems and Y2K issues with any delays in payments." Moreover, he said, "a default, even if temporary, risks a reassessment by the world of the United States' capacity for responsible governance. That is potentially a very big deal."
Fortune reached Summers as he was boarding a flight in South Korea, returning to the U.S. He was in Seoul delivering the keynote address at the World Knowledge Forum. While there, he met with President Park Geun-hye to discuss international financial markets.
Earlier this month, Summers withdrew as a candidate to lead the Federal Reserve. President Obama nominated Fed vice chairman Janet Yellen last week. Summers is currently a professor at Harvard.
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FORTUNE -- Nine days into the first government shutdown in 17 years, and the debate rages on about the budget, debt ceiling, and whether the U.S. has become a global laughingstock. As the days progress, everyone -- from politicians to furloughed workers MOREOct 9, 2013 11:54 AM ET
Just when you thought you'd heard enough about Congressional budget woes, federal employee furloughs -- the biggest spending cuts of the Sequester -- are due to kick in next week and will delay economic growth.
By Tory Newmyer, writer
FORTUNE -- Remember the sequester? The blunt, across-the-board cuts to government spending designed to deliver an austerity blast fell out of mind for most Americans back in April when Congress patched MOREJun 26, 2013 5:00 AM ET
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