Highlights: Bernanke's semi-annual testimony to House panel

For a text of Bernanke's prepared remarks, see http://financialservices.house.gov/UploadedFiles/071311bernanke.pdf

BERNANKE ON IMPACT TO CONSUMERS OF A DEFAULT:

"The risk is that interest rates will begin to rise as our creditors lose confidence in our ability to repay, or willingness to repay. When Treasury rates rise, of course it makes the deficit worse and makes the problem even worse. Interest rates on Treasury debt feed into all other interest rates in our economy, including farm mortgages, capital for oil or natural gas exploration, and consumer loans of all kinds.

"It would weaken our economy, make the deficit worse and it would hurt confidence and be a negative. I am very much in favor of trying to address this problem in a big way, again taking a long-term perspective and understanding this is a long-term problem."

BERNANKE ON WHAT WOULD HAPPEN IF DEBT CEILING ISN'T RAISED

"The assumption is that as long as possible the Treasury would want to try to make payments on the principle and interest of the government debt because failure to do that would certainly throw the financial system into enormous disarray and have major impacts on the global economy.

"So just as a matter of arithmetic fairly soon after that date there would have to be significant cuts in Social Security, Medicare, military pay or some combination of those in order to avoid borrowing more money.

"If, in fact, we ended up defaulting up the debt -- or even if we didn't, I think it's possible that simply defaulting on our obligations to our citizens might be enough to create a downgrade in credit ratings and higher interest rates for us, which would be counterproductive of course because that makes the deficit worse.

"But clearly if we went so far as to default on the debt, it would be a major crisis because the Treasury security is viewed as the safest and the most liquid security in the world. It's the foundation for much of our financial system and the notion that it would become suddenly unreliable and illiquid would throw shockwaves through the entire global financial system.

BERNANKE ON GOLD PRICE

"I think it reflects a lot of things. It reflects global uncertainties. The reason people hold gold is as a protection against what we call tail risks, really, really bad outcomes. To the extend that the last few years have made people more worried about the potential of a major crisis, then they have the protection of gold."

BERNANKE ON WHETHER HE THINKS GOLD IS MONEY

"No. It's not money. It's an asset, but it's not money."

BERNANKE ON DEBT LIMIT

"We need an increase in the debt limit, which will prevent us from defaulting on obligations we have already incurred, and which will create tremendous problems for our financial system and our economy. But we also need, of course, to take a serious attack on the unsustainability on our fiscal position."

BERNANKE ON ADDRESSING LONG-TERM FISCAL ISSUES

"We certainly cannot continue on an unsustainable path. If we were to do so, in the long term clearly we would have higher interest rates, less capital formation, more foreign borrowing, slower growth of the economy. But I think we even risk worse if we were to lose the confidence of foreign creditors and have a threat to our fiscal and financial security.

"So I do think it's important to address these long-term issues. I guess I would emphasize ... that these are long-term issues. It doesn't' have to be solved today or tomorrow. But we need to take some important steps to look at this long-term perspective and to try to restore some stability and sustainability to our fiscal outlook.""