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Citi warns of global recession if US triggers ‘insane’ default

by: IFAonline
  • 29/07/2011
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Citi warns of global recession if US triggers ‘insane’ default
A chorus of global banks has warned that Washington risks triggering a global slump and may suffer permanent loss of credibility by flirting with default on America's $14.3trn (£8.8trn) federal debt.

“Default would be an act of collective insanity,” said Willem Buiter, Citigroup’s chief economist.

“Even if a default were cured promptly, it would severely dent the credibility of the US as a global financial player and the provider of the world’s leading reserve currency.

“There would be an immediate repricing of the dollar and an increase in medium and long-term nominal and real interest rates. Asset, credit, and funding markets in the US and the world as a whole would likely suffer and a global recession would likely result, centred in the US, but not restricted to it.”

Meanwhile, Stephen Roach, head of Morgan Stanley in Asia, said Chinese officials are disgusted by the “astonishing recklessness” of Washington as default looms.

“Coming so shortly on the heels of the sub-prime crisis, the debate over the debt ceiling and the budget deficit and is the last straw,” he said.

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