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US default could cause ‘worldwide recession’

Laura Dew
Written By:
Laura Dew
Posted:
Updated:
14/10/2013

Christine Lagarde, head of the International Monetary Fund, has sparked fears over the impact of a US default, warning it could cause a global recession.

Speaking on US television channel ABC, Lagarde said she feared a possible default could cause a major economic downturn around the world.

“If there is that degree of uncertainty, that lack of disruption, that lack of certainty in the US signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession,” Lagarde said.

The US Government has until 17 October to come to a solution about the US debt ceiling and avoid a default. Although there were talks over the weekend, politicians are said to be no closer to a decision.

Lagarde also criticised any suggestions that the US debt ceiling could fail to be raised, a suggestion made by Kentucky Republican Senator Paul Rand.

“When you are the largest economy in the world, when you are the safe haven in all circumstances, as has been the case, there is no room for creative accounting,” Lagarde said.

She has previously spoken about how reaching a decision over the debt ceiling is “mission criticial” for the American government.

Traders and market participants have already warned any failure to resolve the debt ceiling debate would be catastrophic for markets.

On Saturday, Jamie Dimon, boss of J.P. Morgan said the possible repercussions did not bear thinking about.

“You don’t want to know [what would happen],” he said.

“It would ripple through the world economy in a way that you couldn’t possibly understand.”

 


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