IMF chief warns of global dangers of U.S. default
IMF chief Christine Lagarde warned Tuesday the clock was ticking on a US debt deal, as the dollar slid to new lows amid concerns of a looming and unprecedented default by the world’s top economy.
President Barack Obama, in a solemn late night address to the nation, hit out at what he called a “dangerous game” being played by rival Republicans with the two sides deadlocked over a deal to raise the debt ceiling by August 2.
“We can’t allow the American people to become collateral damage to Washington’s political warfare,” Obama said Monday in his White House address, and warning of a “deep economic crisis” if the US defaults.
For weeks Obama’s Democratic allies have been at loggerheads over a deal with Republicans, who control the House of Representatives, to raise the $14.3 trillion debt ceiling and agree on ways to cut the ballooning US deficit.
Republicans have called for a raft of deep spending cuts — which Obama has agreed to — but emboldened by newly elected arch-conservative Tea Party lawmakers they have refused the president’s calls for matching revenue increases from the nation’s wealthiest.
Lagarde, the new head of the International Monetary Fund, waded into the debate Tuesday urging the two sides to find a compromise, as both parties touted rival plans.
“The clock is irremediably ticking, and people really have to find a solution,” she said in New York.
She warned a default “would be a very, very, very serious event. Not for the United States alone, but for the global economy at large.”
But there was no sign of any give from Republicans, as House Speaker John Boehner hit back within minutes after Obama’s speech blaming him for the crisis.
“The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today,” he said.
World markets wobbled again as global fears spread of no end to the stalemate before next Tuesday’s deadline when the US administration says it will run out of money to pay its bills.
US stocks fell on opening Tuesday with the Dow Jones Industrial Average down 73.30 points (0.58 percent) at 12,519.50 after the first half hour of trading.
European equities also dropped while the dollar slid against the euro and yen, hitting an all-time low against the safe-haven Swiss franc.
“The foreign exchange market seems to be losing faith that the US Congress will reach an agreement… This has caused a sell-off in the dollar across the board,” said Kathleen Brooks, an analyst at trading group Forex.com.
Boehner is proposing a two-step plan with debt increases first to February or March 2012, and later to 2013.
“Time is running short and it would be irresponsible for the president to veto this common-sense plan and run the risk of default,” said Boehner.
But Obama has rejected the idea of a temporary debt limit increase, arguing it would leave the underlying problem unresolved and risk repeating the current crisis in six months’ time.
Obama has warned of “Armageddon” if the United States defaults on its debt repayments for the first time in history, which could see the US lose its coveted AAA debt rating status and plunge the global economy back into turmoil.
Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally.
The United States, still recovering from the 2008 recession with unemployment hovering around 9.2 percent, would be faced with tough choices — meeting either its debt obligations, or reneging on government checks to the poorest, most vulnerable Americans.
The political stakes are also high ahead of the November 2012 elections, and Obama appealed to Americans to “make your voice heard” to members of Congress.
Reports suggested many had heeded the call and that some congressional websites had crashed and the Congress switchboard was flooded with calls.
There are signs the standoff is exacting a political toll on both the president and Republicans ahead of next year’s White House race.
Washington Post/ABC television poll showed weakening support for Obama’s economic agenda, and found the percentage of people who said he has made the economy worse has jumped six points since October to 37 percent.
But about as many people blamed Republican policies with 65 percent disapproving of the GOP’s handling of jobs — still the top economic issue — compared to 52 percent for the president.