Lagarde tells US lawmakers they risk tipping world into recession
Stark warning from IMF chief comes as search for deal to extend
debt ceiling shifts to Senate
http://www.independent.co.uk/news/world/americas/lagarde-tells-us-lawmakers-they-risk-tipping-world-into-recession-8877239.html
Nikhil Kumar
New York: Sunday 13 October 2013
American politicians 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 today 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.
The warning came on the heels of a communique issued on Saturday by G20
finance ministers and central bankers in which they said: "The US needs
to take urgent action to address short-term fiscal uncertainties." Also
on Saturday, the head of the World Bank, Jim Yong Kim, said: "We're now
five days away from a very dangerous moment... Inaction could result in
interest rates rising, confidence falling and growth slowing."
Domestically, a group of state governments swung into action to reopen
some national parks and monuments that had been closed owing to the
partial federal shutdown. In New York, tourists were once again able to
take the ferry from Manhattan to the Statue of Liberty after the
Governor, Andrew Cuomo, said the state would foot the daily bill of
$61,600 to keep the attraction open. Similar deals were struck in
Arizona to reopen the Grand Canyon, and in South Dakota to welcome
visitors back to Mount Rushmore.
Meanwhile, in Washington, as the world looks on nervously and as state
governments attempt to get around the federal closure, the Democratic
Senate Majority Leader, Harry Reid, was in negotiations with his
Republican counterpart in the chamber, Mitch McConnell, as they tried to
put together a deal to break the deadlock.
The venue shifted after the President rejected an offer from the House
Speaker, Mr Boehner, to raise the debt ceiling temporarily until late
November. The proposal was contingent on the White House agreeing to
more detailed talks on the national budget. Democrats, however, would
like a longer-term solution to the debt ceiling issue.
As the talks drag on, the risk is rising of market turmoil, particularly
after stocks rose at the end of last week on signs of an agreement.
While US stock markets will reopen today, the bond markets are closed
until tomorrow for the Columbus Day holiday.
http://www.dailymail.co.uk/news/article-2457514/World-Bank-head-Jim-Yong-Kim-warns-US-5-days-away-dangerous-moment.html
* *World Bank chief Jim Yong Kim warned on Saturday that the United
States was headed toward peril as politicians failed again to
resolve the shutdown standoff
*
* *The US and world economies face higher interest rates, falling
confidence and slower growth if the US Congress does not raise the
$16.7 trillion borrowing cap, Kim said*
By James Nye
<http://www.dailymail.co.uk/home/search.html?s=&authornamef=James++Nye>
*PUBLISHED:* 12:55 GMT, 13 October 2013 | *UPDATED:* 14:28 GMT, 13
October 2013
The alarming remarks from the Korean-American came after three days of
talks revolving around meetings of the 188-nation International Monetary
Fund and its sister lending agency, the World Bank, top officials
pressed the U.S. to resolve the political impasse over the debt ceiling.
The standoff has blocked approval of legislation to increase the
government's borrowing limit before a fast-approaching Thursday deadline.
U.S. Treasury Secretary Jacob Lew has warned that he will exhaust his
borrowing authority Thursday and the government will face the prospect
of defaulting on its debt unless Congress raises the $16.7 trillion
borrowing limit.
More...
* Furloughed IRS worker goes on HUNGER STRIKE to protest government
shutdown
<http://www.dailymail.co.uk/news/article-2455639/Furloughed-IRS-worker-goes-HUNGER-STRIKE-protest-government-shutdown.html>
* Obama won't pay Republican 'ransom' as talks to end shutdown and
debt ceiling crisis stall
<http://www.dailymail.co.uk/news/article-2455393/No-debt-shutdown-deal-president-negotiating-Obama-Boehner-say-talking.html>
'We know there are problems,' Tharman Shanmugaratnam, the head of the
IMF's policy-steering committee and Singapore's finance minister, told a
news conference at the end of the IMF meeting.
'We know there are near-term risks, the most obvious one being what's
going on in the U.S. with regard to the fiscal deficit.'
But one of the big near-term concerns, the expectation that the U.S.
Federal Reserve will start scaling back its massive stimulus program for
the economy, is actually pointing to a positive development, Tharman said.
It means that the U.S. economy is strong enough to withstand a reduction
of the stimulus.
IMF officials have been forecasting that the strengthening U.S. economy
will be a main driver of the global economy in the coming year.
At the same time, developing country economies are slowing and their
markets have been unsettled since May by anticipation that the Fed will
soon begin tapering its $85-billion-a-month bond purchases, which poured
cash into the economy to stimulate growth.
'The eventual normalization of monetary policy as economies recover in
the West will be a net positive for the emerging economies,' Tharman
said, meaning that the strength of the major economies will help carry
the global economy forward.
Lew told finance ministers that the United States understands the role
it plays as 'the anchor of the international financial system' and
assured them the administration was doing all it could to reach a
resolution on the debt.
Read more:
http://www.dailymail.co.uk/news/article-2457514/World-Bank-head-Jim-Yong-Kim-warns-US-5-days-away-dangerous-moment.html#ixzz2hd5SyvlQ
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/Anyone else care to weigh in?/
*Natalia*
<http://www.dailymail.co.uk/news/article-2457514/World-Bank-head-Jim-Yong-Kim-warns-US-5-days-away-dangerous-moment.html>
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