<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[<p>US Republican lawmakers are "playing with fire" by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China's central bank said on Wednesday.<br><br>The idea of a technical default -- essentially delaying interest payments for a few days -- has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday.<br><br>But any form of default could destabilize the global economy and sour already tense relations with big US creditors such as China, government officials and investors warn.<br><br>Li Daokui, an adviser to the People's Bank of China, said a default could undermine the US dollar, and Beijing needed to dissuade Washington from pursuing this course of action.<br><br>"I think there is a risk that the US debt default may happen," Li told reporters on the sidelines of a forum in Beijing. "The result will be very serious and I really hope that they would stop playing with fire."<br><br>China is the largest foreign creditor to the United States, holding more than $1 trillion in Treasury debt as of March, US data shows, so its concerns carry considerable weight in Washington.<br><br>The US Congress has balked at increasing a statutory limit on government spending as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The US Treasury Department has said it will run out of borrowing room by Aug. 2.<br><br>If the United States cannot make interest payments on its debt, the Obama administration has warned of "catastrophic" consequences that could push the still-fragile economy back into recession.<br><br>"It has dire implications for the economy at a time when the macro data is softening," said Ben Westmore, a commodities economist at National Australia Bank.<br><br>"It's just a horrible idea," he said.<br><br><strong>'Wouldn't Happen'</strong><br><br>The Republicans' theory is that bondholders would accept a brief delay in interest payments if it meant Washington finally addressed its long-term fiscal problems, putting the country in a stronger position to meet its debt obligations later on.<br><br>But interviews with government officials and investors show they consider a default such a grim -- and remote -- possibility that it was nearly impossible to imagine.<br><br>"How can the US be allowed to default?" said an official at India's central bank. "We don't think this is a possibility because this could then create huge panic globally."<br><br>Indian officials say they have little choice but to buy US Treasury debt because it is still among the world's safest and most liquid investments. It held $39.8 billion in US Treasuries as of March, US data shows.<br><br>The officials declined to be identified because they are not authorised to speak to the media.<br><br>"It just wouldn't happen," said Barry Evans, who oversees $83 billion in fixed income assets at Manulife Asset Management. "They would pay their Treasury bills first instead of other bills. It's as simple as that."<br><br>Marc Ostwald, a strategist with Monument Securities in London, called the default scenario "frightening" and said bondholders' patience would wear thin if lawmakers persisted in pitching this strategy in the coming weeks.<br><br>"This isn't a debate, this is like a Mexican standoff and that is where the problem lies," he said.<br><br>Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, a government think tank, smelled some political wrangling behind the US debt debate as the 2012 presidential election draws nearer and said Republicans "want to make things difficult for Obama."<br><br>But with time running short before the US Treasury exhausts its borrowing room, Yuan said default was a real risk.<br><br>"The possibility is quite high to see a default of the US debt, which would harm many countries in the world, and China in particular," he said.<br><br>(Reuters)</p>
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