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IMF chief warns a US default could spark recession

by: IFAonline
  • 14/10/2013
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IMF chief warns a US default could spark recession
The head of the International Monetary Fund, Christine Lagarde, has warned that a US default could tip the world into recession.

In a US TV interview she said a default would result in “massive disruption the world over”, the BBC reports.

The US Treasury will start to run short of funds on Thursday if no agreement is reached for it to raise its debt limit.

Democratic and Republican leaders in the Senate held direct talks for the first time in weeks on Saturday.

But there is little sign of any breakthrough, correspondents say.

In an interview with ABC’s Meet the Press Christine Lagarde (pictured) said America must now raise the debt ceiling before Thursday’s deadline.

“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 recession,” she said.

The president of the World Bank, Jim Yong Kim, has also expressed his concern over the situation.

He warned that the United States is just “days away from a very dangerous moment” because of the government’s borrowing crisis.

Mr Kim urged US policymakers to reach a deal to raise the government’s debt ceiling before Thursday’s deadline.

He warned this could be a “disastrous event” for the world.

“The closer we get to the deadline the greater the impact will be for the developing world.

“Inaction could result in interest rates rising, confidence falling and growth slowing,” said Mr Kim, speaking at the World Bank’s annual meeting in Washington.

“If this comes to pass it could be a disastrous event for the developing world and that will in turn greatly hurt the developed economies as well,” he added.

If the US does run short of cash, this could cause it to default on its debts, a development which would be likely to have a severe effect on financial markets around the world.

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