Forget Government Shutdown: IMF & US Treasury Warn Catastrophic Debt Default

by Susanne Posel 

Christine Lagarde, director of the International Monetary Fund (IMF) spoke at George Washington University (GWU) and asserted that if the US Congress does not come to an accord to raise the debt ceiling, this “mission critical” could destroy America.

Consequences would affect not only the US, but the global economy.

President Obama made similar comments earlier in the week: “As reckless as a government shutdown is, as many people as are being hurt by a government shutdown, an economic shutdown that results from default would be dramatically worse.”

At the World Bank (WB)/IMF Spring Meeting in Washington, Lagarde admonished American politicians to “settle their differences” before the country falls into “technical default”.

Lagarde said: “I have said many times before that the US needs to slow down and hurry up – by that I mean less fiscal adjustment today and more tomorrow. The world’s biggest economy needed to put its finances in order, but favored back-loaded measures to raise revenues and limit entitlement spending such as Medicare that did not jeopardize short-term growth. In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.”

For the sake of global markets, Lagarde urged the 188 members of the IMF to “complete the process of financial repair deemed necessary by the near-collapse of the global banking sector five years ago.”


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