News / Economy

IMF: US Failure to Lift Debt Ceiling Could Damage World Economy

International Monetary Fund chief Christine Lagarde speaks about the upcoming IMF and World Bank meetings, at George Washington University in Washington, October 3, 2013.
International Monetary Fund chief Christine Lagarde speaks about the upcoming IMF and World Bank meetings, at George Washington University in Washington, October 3, 2013.
Reuters
Failure to raise the U.S. debt ceiling could damage not only the United States but the rest of the global economy, International Monetary Fund chief Christine Lagarde said on Thursday.
 
“It is 'mission-critical' that this be resolved as soon as possible,” she said in a speech in Washington, ahead of the IMF and World Bank annual meetings next week.
 
Republican and Democratic leaders in the U.S. Congress so far remain at loggerheads over funding the government, keeping hundreds of thousands of federal employees off the job without pay for a third day on Thursday.
 
Though a government shutdown would do relatively little damage to the world's largest economy in the short term, global markets could be roiled if Congress also fails to raise the United States' $16.7 trillion debt limit.
 
The Treasury has said the United States will exhaust its borrowing authority no later than October 17. If no deal is reached in raising the debt ceiling, analysts expect the U.S. government to run out of cash to pay its bills within weeks of that date.
 
Lagarde said growth in the United States has already been hurt by too much fiscal consolidation, and will be below two percent this year before rising by about one percentage point in 2014, assuming political standoffs are resolved.
 
The U.S. Congress imposed a so-called sequester, or across the board government spending cuts, earlier this year after failing to agree on a broad budget package.
 
Glimmers of optimism
 
Turning to the rest of the world, Lagarde pointed to signs of progress in the eurozone and Japan, but said transitions to more stable growth may take a while.
 
She said the eurozone “came up for air” in the spring after six quarters of recession, and the economy should grow almost one percent next year. The currency bloc must address debt-hobbled banks and a fragmented financial system to return to health, she said.
 
Japan also seems to be having success with its massive monetary stimulus to boost the economy out of decades of deflation and lagging growth, boosting GDP by about one percent.
 
“Deflation is coming to an end and a newfound optimism is in the air,” Lagarde said, adding that Japan must still implement a credible plan to bring down its debt and reform entitlements.
 
She said emerging markets have suffered since the U.S. Federal Reserve announced plans to eventually scale back its own monetary stimulus, which prompted capital outflows as investors bet on higher rates in advanced economies.
 
Lagarde said the turbulence could reduce GDP in major emerging markets by 0.5 to 1 percentage points.
 
Monetary policy helped rescue the global economy after the global financial crisis. But as the United States prepares to decrease the pace of its massive bond-buying, it must be aware that its policies affect people and markets around the world, Lagarde said.

‘Special resposibility’

“The U.S. has a special responsibility: to implement [normalization] in an orderly way, linking it to the pace of recovery and employment; to communicate clearly; and to conduct a dialog with others,” she said.
 
But Lagarde said the turmoil in the Middle East and North Africa may be the hardest to resolve, and take the most time. Syria is still in the midst of a civil war and Egypt struggles to address its fiscal deficit and structural reforms while dealing with a political transition.
 
“To succeed, [this region] needs the unwavering support of the international community,” Lagarde said.
 
Finally, she called on governments to better work together on reforming the financial sector, calling progress too slow, partly due to divergences among different countries. She pointed in particular to the “danger zone” of shadow banking, or the non-banking sector that can provide credit but is not under formal regulation.
 
In the United States, shadow banking is twice the size of the banking sector, and in China half the credit given this year has come from shadow banking, she said.
 
“Putting this all together in a globalized world is a headache,” Lagarde said about financial regulation. “And yet, it must be done - nothing less than global financial stability depends on it.”

You May Like

Lion Cecil's Killing Sparks 'Canned Hunting' Debate in S. Africa

Conservationists believe incident, which triggered worldwide outrage, will reshape debate about practice in which hunters are allowed to target animals bred for hunting More

Taliban's New Leader Says Jihad Will Continue

Top US Afghan diplomat also meets with Pakistani, Afghan officials following news of Mullah Omar's death More

Environmentalists Issue Warning on Mekong Biodiversity

Scientists say decades of economic development, hydropower-dam construction, lax law enforcement and trafficking have taken their toll More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Astronauts Train Underwater for Deep Space Missionsi
|| 0:00:00
...    
🔇
X
George Putic
July 30, 2015 8:59 PM
Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Astronauts Train Underwater for Deep Space Missions

Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Civil Rights Leaders Struggled to Achieve Voting Rights Act

Fifty years ago, lawmakers approved, and U.S. President Lyndon Johnson signed, the Voting Rights Act of 1965. The measure outlawed racial discrimination in voting, giving millions of blacks in many parts of the southern United States federal enforcement of the right to vote. Correspondent Chris Simkins introduces us to some civil rights leaders who were on the front lines in the struggle for voting rights.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder Reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.
Video

Video 'Metal Muscles' Flex a New Bionic Hand

Artificial limbs, including the most complex of them – the human hand – are getting more life-like and useful due to constant advances in tiny hydraulic, pneumatic and electric motors called actuators. But now, as VOA’s George Putic reports, scientists in Germany say the future of the prosthetic hand may lie not in motors but in wires that can ‘remember’ their shape.
Video

Video Russia Accused of Abusing Interpol to Pursue Opponents

A British pro-democracy group has accused Russia of abusing the global law enforcement agency Interpol by requesting the arrest and extradition of political opponents. A new report by the group notes such requests can mean the accused are unable to travel and are often unable to open bank accounts. VOA's Henry Ridgwell reports.
Video

Video 'Positive Atmosphere' Points Toward TPP Trade Deal in Hawaii

Talks on a major new trade agreement among 12 Pacific Rim nations are said to be nearing completion in Hawaii. Some trade experts say the "positive atmosphere" at the discussions could mean a deal is within reach, but there is still hard bargaining to be done over many issues and products, including U.S. drugs and Japanese rice. VOA's Jim Randle reports.
Video

Video Genome Initiative Urgently Moves to Freeze DNA Before Species Go Extinct

Earth is in the midst of its sixth mass extinction. The last such event was caused by an asteroid 66 million years ago. It killed off the dinosaurs and practically everything else. So scientists are in a race against time to classify the estimated 11 million species alive today. So far only 2 million are described by science, and researchers are worried many will disappear before they even have a name. VOA’s Rosanne Skirble reports.
Video

Video Scientists: One-Dose Malaria Cure is Possible

Scientists have long been trying to develop an effective protection and cure for malaria - one of the deadliest diseases that affects people in tropical areas, especially children. As the World Health Organization announces plans to begin clinical trials of a promising new vaccine, scientists in South Africa report that they too are at an important threshold. George Putic reports, they are testing a compound that could be a single-dose cure for malaria.
Video

Video 'New York' Magazine Features 35 Cosby Accusers

The latest issue of 'New York' magazine features 35 women who say they were drugged and raped by film and television celebrity Bill Cosby. The women are aged from 44 to 80 and come from different walks of life and races. The magazine interviewed each of them separately, but Zlatica Hoke reports their stories are similar.
Video

Video US Calls Fight Against Human Trafficking a Must Win

The United States is promising not to give up its fight against what Secretary of State John Kerry calls the “scourge” of modern slavery. Officials released the country’s annual human trafficking report Monday – a report that’s being met with some criticism. VOA’s National Security correspondent Jeff Seldin has more from the State Department.
Video

Video Washington DC Underground Streetcar Station to Become Arts Venue

Abandoned more than 50 years ago, the underground streetcar station in Washington D.C.’s historic DuPont Circle district is about to be reborn. The plan calls for turning the spacious underground platforms - once meant to be a transportation hub, - into a unique space for art exhibitions, presentations, concerts and even a film set. Roman Mamonov has more from beneath the streets of the U.S. capital. Joy Wagner narrates his report.
Video

Video Europe’s Twin Crises Collide in Greece as Migrant Numbers Soar

Greece has replaced Italy as the main gateway for migrants into Europe, with more than 100,000 arrivals in the first six months of 2015. Many want to move further into Europe and escape Greece’s economic crisis, but they face widespread dangers on the journey overland through the Balkans. VOA's Henry Ridgwell reports.
Video

Video Stink Intensifies as Lebanon’s Trash Crisis Continues

After the closure of a major rubbish dump a week ago, the streets of Beirut are filling up with trash. Having failed to draw up a plan B, politicians are struggling to deal with the problem. John Owens has more for VOA from Beirut.
Video

Video Paris Rolls Out Blueprint to Fight Climate Change

A U.N. climate conference in December aims to produce an ambitious agreement to fight heat-trapping greenhouse gases. But many local governments are not waiting, and have drafted their own climate action plans. That’s the case with Paris — which is getting special attention, since it’s hosting the climate summit. Lisa Bryant takes a look for VOA at the transformation of the French capital into an eco-city.

VOA Blogs

World Currencies

EUR
USD
0.9118
JPY
USD
124.31
GBP
USD
0.6420
CAD
USD
1.3048
INR
USD
64.136

Rates may not be current.