US borrowing crisis 'days away' from danger, says World Bank head

 

Jim Yong Kim: "We are now five days away from a very dangerous moment"

The president of the World Bank, Jim Yong Kim, has warned that the United States is just "days away from a very dangerous moment" because of the government's borrowing crisis.

He urged US policymakers to reach a deal to raise the government's debt ceiling before Thursday's deadline.

The US Treasury will start to run short of funds if no agreement is reached for it to borrow on financial markets.

Mr Kim warned this could be a "disastrous event" for the world.

"The closer we get to the deadline the greater the impact will be for the developing world.

"Inaction could result in interest rates rising, confidence falling and growth slowing," said Mr Kim, speaking at the World Bank's annual meeting in Washington.

Start Quote

There are three examples in US history that come close to default, with the most recent occurring in 1979”

End Quote

"If this comes to pass it could be a disastrous event for the developing world and that will in turn greatly hurt the developed economies as well," he added.

'Uneasy'

If the US does run short of cash, this could cause it to default on its debts, a development which would be likely to have a severe effect on financial markets around the world.

The BBC's Andrew Walker said that finance ministers from other countries think the US probably won't default, but they are uneasy and want the crisis resolved very soon.

Republicans and Democrats failed to come to an agreement on Saturday, but Senator Dick Durbin, a Democrat, said the aim was to reach a deal on extending the debt limit before markets reopen on Monday.

The White House rejected a deal for a short-term increase to the borrowing limit.

"It wouldn't be wise, as some suggest, to just kick the debt ceiling can down the road for a couple of months, and flirt with a first-ever intentional default right in the middle of the holiday shopping season," said President Barack Obama.

Shutdown

The US government has been in partial shutdown since Congress missed a 1 October deadline to pass a budget, with politicians being unable to agree funding for current spending.

This has resulted in hundreds of thousands of federal employees being sent home and government offices closing.

Arizona Governor Jan Brewer announces the reopening of the Grand Canyon National Park

Republicans refused to approve the new budget unless President Obama agreed to delay or eliminate the funding of the healthcare reform law of 2010.

US Treasury Secretary Jack Lew has estimated that each week the government is shut down, 0.25% is shaved off economic growth, which was already expected to be a sluggish this quarter.

Debt burden

Mr Lew has also has warned that letting talks over the debt ceiling go down to the wire "could be very dangerous".

The current debt limit of $16.699 trillion was reached in May.

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

End Quote Jamie Dimon Chief executive, JP Morgan

Since then the US Treasury has been using what are called extraordinary measures to keep paying the bills, but those measures run out on 17 October.

Every week, the Treasury also has to refinance $100bn worth of debt in the form of US government bonds known as treasuries.

The US also has to pay interest on its huge debt burden.

An inability to pay that interest, or pay back debt if required, would put the US into default.

On Saturday, Jamie Dimon, boss of the American bank JP 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."

 

Comments

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  • rate this
    +2

    Comment number 1186.

    "What time Thursday are the Chinese going to Fort Knox?"

    --Just before the Tea chests arrive.

  • rate this
    +1

    Comment number 1185.

    Obama Care has not been properly costed and is purely being financed by more borrowing and spending.

  • rate this
    +2

    Comment number 1184.

    1182.Gettingmy145poundsworth
    What time Thursday are the Chinese going to Fort Knox?
    lol..........................................................................................nice post

  • rate this
    +1

    Comment number 1183.

    #1175 Peter N

    -- This is firstly a societal problem. With (for example) companies cutting working hours to avoid paying their share -- insurance can have problems.

    --even the low 2% tax on medical equipment companies is being fought -- with company headquarters ( address only) in Delaware to avoid paying any taxes (as many do)

    -- and then hiring at 20 hours /week

    -- Such is the discussion.

  • Comment number 1182.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 1181.

    Obama isn't changing US Healthcare
    He's plugging holes mandating :
    * Insurance covers all w/ no exemption eg pre-existing illness
    * All People get insurance @ minimal cover
    * State helps coverage for those who can't afford due poverty

    Insurance Costs were already spiralling out of control
    Deficit has not been due to Healthcare
    New System has initial costs and long term cost benefits paying itself

  • rate this
    0

    Comment number 1180.

    1179. DeeplyConcerned - "...the end of the American Empire?
    Selfish, greedy, shallow & hypocritical, this will be how America will be remembered by the history books..."

    Of course all other nations are paragons of virtue, only the US has faults, lol.

    Here's my prediction, 1 month from now we will all be wondering what the fuss was about, the US will still be the US.

    Good night all.

  • rate this
    -1

    Comment number 1179.

    Who'd have thought at then end of the Cold War in the early 1990's that we would all be around to see the end of the American Empire?

    "This is the way the world ends
    Not with a bang but a whimper."

    Selfish, greedy, shallow and hypocritical, this will be how America will be remembered by the history books, much like every other empire

  • rate this
    0

    Comment number 1178.

    US borrowing crisis
    Er? you have NO money left to borrow
    "Let's raise the Debt Ceiling"
    ER? You have no Assets to cover your existing Debt
    US IS NOW BANKRUPT

  • rate this
    0

    Comment number 1177.

    The Republicans I think will blink and for this reason.
    The Tea Party's biggest fundraisers would not be that willing to see billions wiped off in share prices if the U.S defaults.
    But, Tea party loons like Glenn Beck and Alex Jones have been saying for years to stock up on guns, water and Gold.
    It's lunatics like that that actually WANT this so they can be the big Survivalist I told you so's

  • rate this
    0

    Comment number 1176.

    #1171 Roots

    "maybe China can set up Chinese Express to replace American Express"

    --hard currency at last.

  • rate this
    0

    Comment number 1175.

    1173. quietoaktree - "1164 Peter N - 'So why don't they all have insurance already?'
    Because not having it is a Right -- the Right to die without proper medical care and bankrupt?
    Please tell me your explanation."

    Your post doesn't even make sense.

    If you re-read 1164 you'll see I have already told you why - 'They can't afford it..' So the State intends to provide/subsidise it for them.

  • rate this
    -1

    Comment number 1174.

    1169 Andrew

    "For instance Health care free for everybody without any consideration to the shear scale of the costs"

    What a shameful opinion. It is the first duty of the state to look after its citizens, especially one as rich as the US

    It is crippled financially by the many wars and countless overseas military camps in pursuit of empire building

    Save money - Bring your troups home

  • rate this
    0

    Comment number 1173.

    1164 Peter N

    "So why don't they all have insurance already?"

    -- Because not having it is a Right -- the Right to die without proper medical care and bankrupt ?

    -- Please tell me your explanation.

  • rate this
    +1

    Comment number 1172.

    " 1166.
    emma milton

    Why don't the Americans take a leaf out of our books and sell everything, including the debt, to the population?"

    Isn't that what they are doing?

  • rate this
    0

    Comment number 1171.

    Americans without credit will be a bitter pill for them to swallow for their body building financial health and wealth money in the bank account

    but here's the rub US Banks is biggest lenders in Money Markets
    and US Credit Cards Corps lend out most

    which means no more cheap credit globally for anyone
    (liquidity crises again)
    maybe China can set up Chinese Express to replace American Express

  • rate this
    +1

    Comment number 1170.

    Aye! They call it 'Obamacare'
    Meanwhile here in the UK we still fail to see how even the poorest are not treated with the same medical care as any other human being
    I wonder what Florence Nightingale would have done when she toured the wards of Scutari every night ,holding her lamp?
    God Bless Her.

  • rate this
    +3

    Comment number 1169.

    It's Obama, he's got to one of the world's worse leaders ever. He's only interested in leaving his mark by creating his own Legacy. For instance Health care free for everybody without any consideration to the shear scale of the costs. He's bringing the US down and the rest of the world economically. His answer is to borrow, borrow, borrow. which any idiot can run a country that way..

  • rate this
    0

    Comment number 1168.

    Western Capitalism moved their production lines from the Unionised Factories with workers rights to the satanic sweatshops of the world with none.
    Their greed has started to catch up with them.And now it's time to pay.
    What do you do when those foreigners you once exploited end up becoming your creditors ?
    We 're going to find out in the coming years I have no doubt.
    Karl Marx was right.

  • rate this
    +1

    Comment number 1167.

    And if it is delayed, what then? How many times do we go through this brinkmanship before either there is a default, with all of its nasty consequences, or countries decide that the US is just too irresponsible to trust on finance?

 

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