Christine Lagarde, head of the International Monetary Fund (IMF), warned that America is risking a “massive disruption the world over” if it doesn’t resolve the current standoff.
She said that the global economy could be pushed into another recession if politics gets in the way of raising the country’s debt ceiling and the ongoing government shutdown remains unresolved.
Her assessment came after news that talks between the Speaker of the House of Representatives, John Boehner, and President Barack Obama had broken down.
The US government is due to hit the agreed ceiling on how much money it can borrow to fund its commitments by 17 October.
If the $16.7 trillion limit is not raised by the legislature, then America would be forced into dishonoring its spending commitments and defaulting on its debts.
Lagarde told NBC: “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 added that 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.”
In Washington, the Democratic Senate Majority Leader, Harry Reid,was negotiating with his Republican counterpart, Mitch McConnell, as they tried to put together a deal to break the deadlock.The longer the talks drag on, the greater is the risk of rising of market turmoil.
Christine Lagarde is known as calm and rational in all her previous roles in the financial world, so her remarks must taken very seriously by US lawmakers.
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