THE HEAD OF the International Monetary Fund has issued a stark warning on the American government shutdown, saying that a US default could trigger a worldwide recession.
Christine Lagarde said a default would cause “massive disruption the world over” in an interview on US television.
She also said that the US should avoid “brutally” slashing spending just as there are signs of recovery or it could end up sending the economy back into trouble.
“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 a risk of tipping yet again into recession,” she told ABC’s Meet the Press programme.
She said the US needs to pay attention to how much it spends on social welfare programmes. “The point is not to contract the economy by slashing spending brutally now, as recovery is picking up,” she said.
The pace of consolidation has to be sensible in orde to protect that growth which is generating jobs, and which is helping in all sorts of ways.
She said that the US government needs a “balanced approach” to cutting and spending.
The United States has until Thursday to raise its debt ceiling or it could default on its debts for the first time in its history.
The federal government has been in shutdown for the past two weeks after an impasse between Republicans and Democrats – mainly over Republicans unhappiness with President Barack Obama’s new national system of health insurance due to be introduced shortly – led to a failure to agree on a budget for the federal government by the agreed deadline.
With no money allocated to pay people who work for government departments and agencies, around 700,000 federal workers have been told not to turn up to work.
There have been several attempts to reach a deal on ending the impasse but as of this morning, there is still no sign of an end to the shutdown.
An NBC/Wall Street Journal poll found that 55 per cent of people blame Republicans for the shutdown.
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