By Jaime Ortega.
It is already the third day break in the U.S. government for the lack of funds and a new warning to lawmakers in Washington to solve their differences soon. The voices came from the International Monetary Fund. The managing director of the organizations, Christine Lagarde, warned on Thursday that the political drama could end up causing ” serious damage, not just to the U.S. economy , but the economy of the entire planet.”
Lagarde, in a speech before the annual autumn meeting organized by the agency and the World Bank, said the partial cessation of the U.S. administration ” is already bad enough .”
“But the failure to raise the federal debt ceiling is much worse,” he said . As has been repeated time and time again, the U.S. must address its fiscal problems calmly and quickly.
The big Wall Street executives warned on Wednesday that things can get really ugly if it gets to 17 October without a deal to raise the debt limit. They enter into a territory never explored, with effects that can be very severe not only for the U.S. economy , but also for the global financial system and that worries the IMF.
The U.S. Treasury again warned Congress of “catastrophic” consequences if the federal debt ceiling is not raised and solved, saying it will cause a recession that “could be the same or worse than in 2008.” He also notes that the first signs are seen that the current tax debate is affecting the financial market . Therefore believes that the only way out of this crisis is “acting now.”
Technically, the greatest economic power in the world is in a default situation because they have no funds to meet its legal obligations. The US hit that limit, and set at 16.7 billion in May. However, achieved thanks to the extraordinary accounting measures to maintain its ability to borrow without going over.
The Treasury leeway is exhausted, and could even happen a few days before the date hits the guillotine, at which point the government will have to start prioritizing what to pay before its in their hands. Two weeks after that time , the situation will be really ugly because debt is the core engine to provide liquidity to the economy.
In his speech, Lagarde mentioned the burden that is causing the derivative spending cuts of the last political clash between democrats and republicans. The U.S. must have a plan that allows you to reduce debt. ” Political uncertainty does not help meet that challenge,” he lamented. So considered “critical” to resolving the impasse.
Citigroup economists consider that the last thing you need at this time of recovery is uncertainty and lack of confidence. So ask the president, the Democrats and Republicans to behave as adults. Like other analysts, as Moody’s reiterates that the closer the October 17 gets, most will run the risk of falling into another recession.
In the scenario drawn by Christine Lagarde , the U.S. is now an important shade . Not only because of the fiscal crisis. The other point of attention is the process of withdrawal of monetary stimulus and how that may affect emerging countries. ” The output will start soon ,” he predicts , a process towards monetary normalization waiting is done ” with care ” .
“A special responsibility “
“Its going to affect many markets and people around the world, the U.S. has a special responsibility “clinched the senior official. Lagarde stressed in his speech the strength of emerging markets, to say that the last five years were those who ” kept the global economy afloat .” But that momentum is moderating and growing in half points below 2010.
The end of cheap money policy in the advanced economies is causing capital flows to these backed up markets. A looser monetary policy could help compensate in some countries, but there are others, such as Brazil, where high pressure ” has less room for maneuvering the economy.” Neither looks much to resort to fiscal policies.
Regarding the situation in Europe, they predicts that after six quarters in recession, the economy will grow next year by about 1 %. But a 12% average unemployment is still considered ” too high ,” especially among youths, in which one between two do not work. While acknowledging the progress in fiscal and financial integration , says that “we must do more.”
The IMF next week will publish its economic forecasts. Without giving figures, talks about global growth described as ” tenuous” . In some advanced economies , he says, they’re finally “signs of hope ” through a more robust expansion is needed for the return of financial stability and public accounts to be cleaned up. Although Lagarde said that ” the fog of crisis begins to rise” , she believes that the full recovery of the recession will be a process that will take more than a decade.
