IMF joins Obama in warning of danger in US debt stalemate

Other News Materials 27 July 2011 01:26 (UTC +04:00)
The International Monetary Fund Tuesday added its worried voice about the political brinkmanship over the US debt, pleading with Washington to avoid another "fiscal shock."
IMF joins Obama in warning of danger in US debt stalemate

The International Monetary Fund Tuesday added its worried voice about the political brinkmanship over the US debt, pleading with Washington to avoid another "fiscal shock.", dpa reported.

"The clock is ticking, and clearly the issue needs to be resolved immediately," IMF director Christine Lagarde told the Council on Foreign Relations in New York.

She warned that an "adverse fiscal shock" in the US could have "serious spillovers" around the globe.

But so far reaction on financial markets has not been drastic, a sign the White House attributed to a belief that Washington would eventually reach a deal.

"I'm not a market analyst, but I think it is a good thing that people still believe, as we believe, that Washington will eventually do the right thing and resolve this problem," spokesman Jay Carney said.

"And to the extent that that's reflected in markets, that represents our view, which in spite of everything, in spite of the drama and the back-and-forth, that in the end, because of the stakes, and because of the need to do something, and the fact that we're here to serve the American people, we will, in the end, do the right thing."

Late Monday, in a nationwide primetime address, President Barack Obama painted a bleak picture of the impact if leaders in Washington fail to reach a deal to raise the government's debt ceiling by August 2.

He said a failure to act by the deadline would lead to a default on US government bonds. Pensioners, military retirees and companies doing business with the government could all be left empty-handed, while interest rates would rise, Obama said.

Obama criticized an opposition plan, presented by Republican Speaker of the House John Boehner, which proposes a two-step rise in the 14.3-trillion-dollar debt ceiling and would force resumption of the bitter debate within several months.

Boehner's plan appeared to be running into increased resistance among his own rank and file, according to a report in The Wall Street Journal. It quoted Republican congressman Jim Jordan as saying he was "confident" there weren't enough Republican lawmakers to pass the plan.

Jordan heads a group of conservatives that includes 178 of the 240 Republican House lawmakers. He told the Journal that Boehner's plan would not have the backing of 218 Republicans, the number needed for a majority vote.

A group of about 80 Republican lawmakers in the House connected to the conservative Tea Party movement are under fire not only from Democrats but also a growing part of the US public for their rejection of any revenue increases to help solve the nation's deficit problem.

Boehner's plan, which does not call for tax increases, is scheduled for a vote on Wednesday. Obama in recent days has threatened to veto the two-step plan, but in a nationwide primetime address Monday night on the issue, he did not mention the word veto.

Boehner's plan would raise the debt ceiling in two stages, and cut the deficit by about 3 trillion dollars over the next decade.

Obama has given reluctant backing to a competing plan by Senate Majority Leader Harry Reid, a Democrat, that would increase the debt ceiling by 2.4 trillion dollars and cut spending by about 2.7 trillion dollars. It also contains no tax increases, in a concession to the increasingly strident Republican demands.

Carney said Tuesday that Boehner's plan appeared unlikely to pass the upper Senate and threw support behind the alternate plan by Reid.

Obama gave a stern warning Monday night.

"We are left with a stalemate," he said. Without a resolution, "we would risk sparking a deep economic crisis - this one caused almost entirely by Washington."

Obama's left-leaning Democrats held large majorities in both chambers of Congress until major gains for Republicans in November 2010 elections gave them control of the House, helped in large part by the Tea Party movement against big government.

"The American people may have voted for divided government, but they didn't vote for a dysfunctional government," Obama told viewers Monday night.

He urged viewers to call their representatives in Congress. On Tuesday, some Capitol switchboards were shut down by unusually high volumes, CNN reported.