How much clearer can Ben Bernanke be?

The Federal Reserve Chairman has issued a stern warning to Congress repeatedly this year: if it fails to raise the U.S. debt ceiling by Aug. 2, the economic fallout could be "catastrophic," "self defeating" and "dire."

And yet, here we are in mid-July, with the country only three weeks away from a possible default, and Bernanke is repeating his warning again -- this time in his semi-annual monetary policy report to Congress.

"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 most liquid security in the world," Bernanke said, indicating such an event would raise interest rates and send shockwaves rippling through the entire global system.

And contrary to what some Republicans have proposed, just paying interest on the debt to bondholders may not preserve the nation's pristine credit rating, Bernanke said.

"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, since it makes the deficit worse," he said.
Debt ceiling: Chaos if Congress blows it

If Congress does not pass the debt ceiling by Aug. 2, the Treasury Department will not be able to pay at least 40% of its bills -- possibly including payments to Social Security recipients and military pay.

Bernanke also indicated the U.S. economy is at a crossroads, and the central bank is prepared to either provide further stimulus or pull back from intervening.

"On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," he said in prepared testimony, indicating the Fed stands ready to provide additional stimulus if the recovery falters.

While those remarks immediately gave U.S. stocks a boost, the Fed chairman was quick to follow up that statement with a completely opposite idea -- showing it's not really clear which direction the economic recovery is heading right now.

"On the other hand, the economy could evolve in a way that would warrant a move toward less-accommodative policy," he said.

From November until June, the Fed bought $600 billion in U.S. Treasuries as a way to boost the economic recovery.

Amid disappointing jobs reports in May and June, and other weak readings on the economy, critics have questioned whether that controversial policy -- known as the second round of quantitative easing, or QE2 for short -- has actually worked.
Debt ceiling: What you need to know

Bernanke cited statistics that private businesses have averaged 160,000 jobs created each month in 2011, and part of that could be due to QE2.

That said, the Fed is maintaining its weak forecasts for the year overall, expecting the economy to grow by only 2.7% to 2.9% in 2011.

Meanwhile, inflation remains a concern, Bernanke said. He had previously argued that higher consumer prices are merely "transitory", but he changed his tune slightly Wednesday and seemed more vigilant of inflationary pressures.

"Given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate," he said.

Tim Geithner is considering leaving his post as Secretary of the Treasury after a deal to raise the debt ceiling is reached, a source familiar with the discussion told CNN Thursday.

Geithner is the lone remaining member of President Obama's original economic team.

Asked by former President Bill Clinton on Thursday at a Clinton Global Initiative event about his future plans, Geithner said he would be doing his job "for the foreseeable future."

A Treasury official said that Geithner will not make any decisions while he's focused on negotiations over the debt limit and deficit reduction.

Another source familiar with the discussions between Geithner and the White House said it could be a while before Geithner's ultimate departure. "You have to have somebody lined up for the job -- you can't just leave," this source said. "And there's a relative scarcity of people who would fit the bill."

Obama nominated Geithner to be the 75th Secretary of the Treasury, and the Senate confirmed him on Jan. 26, 2009.

Geithner went on to spearhead the administration's response to the financial crisis that threatened to unravel economic growth around the globe.

That response included a bailout of the U.S. auto industry, a massive economic stimulus package and a landmark Wall Street reform effort. So-called stress tests of the nation's largest banks in early 2009 also helped shore up confidence in financial markets.

Geithner's first days in the administration were not without stumbles, as markets met his efforts to support the banking industry with skepticism, and giant bonuses paid to executives at bailed-out insurer AIG sparked public outrage.

But Geithner emerged as one of the strongest voices on Obama's economic team.

"I think he has done a great job in a backbreaking position," Clinton said Thursday.

Another member of Obama's original team, Council of Economic Advisers chairman Austan Goolsbee, has said he will leave the administration in August to return to the University of Chicago.

That leaves the administration with two holes to fill in the months leading into the 2012 presidential race, where the economy is expected to be issue No. 1.

National Economic Council director Lawrence Summers, and Office of Management director Peter Orszag left the administration last year. Christina Romer, the original chair of the Council of Economic Advisers, has also left.

Before joining the administration, Geithner held the top post at the Federal Reserve Bank of New York, where he played a crucial advisory role during the financial crisis of 2008.

Before joining the Fed, he held posts at the IMF and worked in the Clinton administration Treasury Department.