Fed's Fisher decries U.S. flirtation with default

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By Jana J. Pruet

DALLAS (Reuters) - A U.S. central banker known for his criticism of Washington politics warned on Monday that the standoff in the U.S. Congress that has shut down the federal government could drive the country to the edge of defaulting on its sovereign debt.

The United States will run dangerously low on cash if lawmakers do not raise the federal borrowing cap by October 17, and a default could follow within a week.

"I deeply hope and I don't think we'll default, but it will come down to the wire," Dallas Federal Reserve Bank President Richard Fisher said in a forum at Southern Methodist University in Texas. "It's an embarrassment for my country."

The federal government shut down most of its operations and idled all but its most essential workers on October 1 after congressional Republicans made defunding or delaying President Barack Obama's signature healthcare law a condition of approving a budget for this fiscal year.

Congressional Republicans have insisted on similar concessions for raising the $16.7 trillion debt limit.

A previous confrontation over the debt ceiling in August 2011 ended with an 11th-hour agreement under pressure from shaken markets and warnings of an economic catastrophe if there was a default.

A ray of hope in the latest fiscal impasse emerged on Monday, with Obama saying he would accept a short-term fix on the debt-limit to avoid a default.

Still, the change in tone was not enough to mollify Fisher, a consistent critic of U.S. fiscal policy, which he says has hobbled the future of the nation.

"We have the three stooges in Washington," he quipped, referring to a slapstick comedy show popular in the last century.

Fisher repeated his view that the Fed has done enough, even more than enough, to boost the economy and that what is holding back growth is lawmakers' failure to clarify tax and spending policies.

He declined to predict when the Fed will decide to ratchet back its massive bond-buying stimulus program.

"The committee as a whole agreed that we didn't have proof that economy was improving," he said of the Fed's surprise decision last month not to reduce its $85 billion-a-month asset-purchase program.

(The story has been filed again to correct byline in October 7 item.)

(Writing by Ann Saphir; editing by Christopher Wilson)

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