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Recession could be Caused by US Default


Chief of IMF Voices Concerns over US Default Causing Recession

Christine Lagarde, the head of the International Monetary Fund, has expressed concern that if the US does default on their debt, it could plunge the world into recession.

She was being interviewed for a US TV show when she said that if they do default, then it could cause 'massive disruption the world over'. 

If no agreement is reached to increase the US's debt limit, the US Treasury will begin to run out of money and a recession will be imminent.

The leaders of both the Democratic and the Republican parties held talks on Saturday, the first of their kind to take place in several weeks.
However, correspondents are taking a negative view on the outcome, saying it is unlikely that a breakthrough will occur in time to prevent recession.

When interviewed by the NBC programme Meet the Press, Christine Lagarde said that American would have to raise their debt ceiling before the deadline 

She was reported as saying that the uncertainty could cause severe problems, not just in the US around the world. Not only would it cause disruption, but it could also lead to another recession.

World Bank News

Jim Yong Kim, the president of the World Bank, has also issued warnings about the potential consequences of the situation and the threat of recession. He has expressed his concern that the US is only a few days away from a potentially very damaging situation.

The bank's president was eager for the policy makers in the US to reach some kind of agreement over the debt ceiling before the deadline warning, that a failure to do so could be a 'disastrous event' and cause global recession.

He expressed his concern over a potential drop in growth and confidence and a rise in interest rates, and he had particular worries about the developing world. 

International finance ministers don't believe that the US will default, but there is a general uneasiness about the potential impact of the crisis and the looming threat of recession.

After the White House rejected a deal for a short-term increase to the borrowing limit, it is now a race to reach an agreement. The partial shutdown of the US government has been in place since they failed to pass a budget and has meant thousands of federal employees have been sent home.

The shutdown could be costing the government dearly, with an estimate from the US Treasury Secretary suggesting that it could be shaving 0.25% off economic growth with every week it continues.

Written by David Archer of Circle Square - Financial Jobs London / Accountancy Jobs London

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