IMF Chief Lagarde: Can’t Imagine U.S. Defaulting, Calls on US to Raise Borrowing Limit

Wall Street Journal
By Ian Talley

Christine Lagarde
Head of the IMF

WASHINGTON – A U.S. debt default could “shock” and destabilize the global economy, International Monetary Fund head Christine Lagarde warned Sunday, but added she doesn’t believe U.S. authorities would allow this to happen.

On ABC’s “This Week” news program, Ms. Lagarde called on lawmakers and the Obama administration to agree on a compromise budget package before an Aug. 2 deadline, when the U.S. could default on its obligations if Congress hasn’t raised the $14.29 trillion borrowing limit.
“I can’t imagine for a second that the U.S. would default,” Ms. Lagarde said. But if lawmakers fail to reach an accord, “that would be a real shock and it would be bad news for the U.S. economy” and would “certainly jeopardize the stability” of the global economy, Ms. Lagarde said.

“I would hope that there is enough bipartisan intelligence and understanding of the challenge that is ahead of the United States, but also of the rest of the world,” the former French finance minister added.
Losing credibility in the debt markets could potentially cause a sudden spike in the cost of debt and a downgrade by rating agencies, the IMF has said.

If no deal is reached, Ms. Lagarde said she would expect “interest hikes, stock markets taking a huge hit and real nasty consequences, not just for the United States, but for the entire global economy.’’
Democrats and Republican leaders are set to meet later Sunday at the White House to try to hash out a budget deal. But so far, Republican lawmakers and the White House are at an impasse, fighting over future budget cuts and tax policies.

Ms. Lagarde addressed the case of her predecessor, Dominique Strauss-Kahn, who resigned six weeks ago after being arrested on sexual-assault charges. The future of the case now is unclear amid reports raising questions about the accuser’s credibility. Ms. Lagarde said Mr. Strauss-Kahn had done an excellent job as fund chief, despite the damage from the fallout of his case.

“But when an institution loses its managing director under such circumstances, there are clearly wounds as a result,” she said. “Some people feel very hurt, other people feel betrayed, it’s a very strange chemistry, of frustration, irritation, sometimes anger, sometimes very deep sadness.”

China says the U.S. is already defaulting on debt

The Oval
David Jackson

Forget the debt ceiling debate -- the U.S. is already in default, a Chinese ratings agency claims.
"In our opinion, the United States has already been defaulting," said Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., reports AFP, describing that organization as "the only Chinese agency that gives sovereign ratings."

U.S. Treasury officials have already said that the government exceeded its $14.3 trillion debt ceiling in April, but that accounting procedures would finance obligations through Aug. 2.

The Chinese claim to contrary comes just two days another Chinese official warned that congressional Republicans are "playing with fire" in opposing efforts to increase the debt ceiling.

The debt ceiling is a primary topic of ongoing budget talks between President Obama's administration and members of Congress from both parties.

Republicans, including those who control the U.S. House, say they won't vote to increase the debt ceiling until the administration commits to major spending cuts.

"We believe that many of the problems surrounding the lack of job creation and growth in this country have to do with the fact that there isn't a credible plan to manage down the debt and deficit in this country," said House Majority Leader Eric Cantor, R-Va. "That's what we're trying to produce here."
Obama officials say they too want to reduce the debt, but raising the debt ceiling as soon as possible is an imperative.

"This is not a matter of spending," Obama said. "This is a matter of the United States meeting its obligations, not defaulting on its obligations."