independent | American lawmakers risk causing a “massive disruption the world over” that could tip the global economy into another recession if politics gets in the way of raising the country’s debt ceiling and the ongoing government shutdown remains unresolved, Christine Lagarde, the head of the International Monetary Fund, warned on Sunday as the US Senate became the focus of talks to end the budgetary deadlock in Washington.
The stark assessment by Ms Lagarde, a former French Finance Minister, came after news that talks between the Republican Speaker of the House of Representatives, John Boehner, and President Barack Obama had broken down, putting the onus on the Senate leadership to craft a bipartisan pact to avert what experts predict would be financial catastrophe.
The US government will hit the congressionally-mandated ceiling on how much money it can borrow to fund its commitments by 17 October. If by then the $16.7 trillion (£10.4trn) limit is not raised by the legislature, the US would be forced to walk down a road usually associated with weaker economies: dishonouring its spending commitments and defaulting on its debts, an outcome that Ms Lagarde said could shatter the fragile economic recovery under way in the US and around the world.
“If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over, and we would be at risk of tipping yet again into a recession,” she told NBC.
The IMF chief also poured cold water on suggestions by some within the Republican camp, including the Kentucky Senator Rand Paul, that the government need not default if the ceiling is not raised. Mr Paul told CNN that “not raising the debt ceiling means you have to balance your budget. It doesn’t mean you have to default.”
But Ms Lagarde said there was no room to get around the limit and what it meant. “When you are the largest economy in the world, when you are the safe haven in all circumstances, as has been the case, you can’t go into that creative accounting business,” Ms Lagarde said. Fist tap Dale.
The stark assessment by Ms Lagarde, a former French Finance Minister, came after news that talks between the Republican Speaker of the House of Representatives, John Boehner, and President Barack Obama had broken down, putting the onus on the Senate leadership to craft a bipartisan pact to avert what experts predict would be financial catastrophe.
The US government will hit the congressionally-mandated ceiling on how much money it can borrow to fund its commitments by 17 October. If by then the $16.7 trillion (£10.4trn) limit is not raised by the legislature, the US would be forced to walk down a road usually associated with weaker economies: dishonouring its spending commitments and defaulting on its debts, an outcome that Ms Lagarde said could shatter the fragile economic recovery under way in the US and around the world.
“If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over, and we would be at risk of tipping yet again into a recession,” she told NBC.
The IMF chief also poured cold water on suggestions by some within the Republican camp, including the Kentucky Senator Rand Paul, that the government need not default if the ceiling is not raised. Mr Paul told CNN that “not raising the debt ceiling means you have to balance your budget. It doesn’t mean you have to default.”
But Ms Lagarde said there was no room to get around the limit and what it meant. “When you are the largest economy in the world, when you are the safe haven in all circumstances, as has been the case, you can’t go into that creative accounting business,” Ms Lagarde said. Fist tap Dale.
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