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."

 

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  • Comment number 486.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +4

    Comment number 485.

    The crisis is about the cost of govt - not the real economy of ordinary people providing goods and services. I guess we'll see just how useful the men-in-suits (bankers and politicians; grifters all) actually are.
    The real economy of doers, growers and makers is where the 21C action will be.
    EF Schumacher was right - the corporatism and managerialism of big organisations is unsustainable.

  • rate this
    +4

    Comment number 484.

    This could be potentially catastrophic.Seeing as the West only narrowly avoided complete financial meltdown in 2008 its not as if we are in the best of economic health.It really could end up being world depression as opposed to recession.

    China and Japan must be getting nervous if the US default if they are owed the most...

    Unless the USA has a cunning plan...

  • rate this
    -19

    Comment number 483.

    if i was dave cameron i wud conquer n defeat usa
    300 mill morepeople to tax
    this erase our debts+gives us more land

    we thentake canada. use canadian $ to pay the new british citzen americans benefits etc

    this is my idea to help america
    and united kingdom
    americans dont like obama i see them ranting on youtube

    rich coutnry like usa shudnt be in a mess

    osborne cameron etc wudnt let this happen

  • rate this
    +3

    Comment number 482.

    1. QE must be stopped.

    2. QE money must be repaid by the banks.

    3. The price of money has to rise to at least inflation.

    Unless and until all three conditions are met capitalism is dead.

    The consequences of dead capitalism :

    - Real businesses (profitable ones!) die and wither.

    - Nobody saves. (and all pension schemes are bust!)

    - Only corrupt businesses thrive.

    = DEAD CAPITALISM.

  • rate this
    +3

    Comment number 481.

    396.ambrosia

    Like UK, it has to tackle its corporate tea-party elite.

    The British Tories would be hard-core liberals in the USA. Hard to believe but true. The UK may have its nutters like every country but we all fade in comparison to the US and its Tea Party Loonies. I also don't look towards France for anything personally, what with Marine Le Pen in Bronze position in government atm.

  • rate this
    +7

    Comment number 480.

    Money is an abstract concept, you can't eat it, live in it or heal yourself with it. You can control fools with it. This isn't about money, it doesn't actually exist. It's about power. What money can do is illuminate where the real power is located. Follow the money and you'll find the real culprits.

  • rate this
    -2

    Comment number 479.

    So let me get this right . The whole world goes into meltdown because some selfish Americans don't want poor people to get healthcare.Or am I missing something.

    A laudable sentiment but the bigger danger lies within this argument. Does USA continue buying votes by giving out free health care,etc by borrowing ever more debt from other countries ? Kicking the can down the road has it own dangers.

  • rate this
    +6

    Comment number 478.

    Give me $17 trillion of someone elses money and my house will be a world superpower,its easy to spend bucket loads of someone elses money and then not repay it,especially when you spend all that money on nothing but weapons

  • rate this
    +5

    Comment number 477.

    It was George Bush who spent $10 trillion on his so called war on terror, imagine if he had instead chose a more measured approach instead of the whole sale bombing campaign that he did instead. The USA wouldn’t be facing bankruptcy now. Thats where right wing politics get you in the end. Thats the proof of the pudding.

  • rate this
    +4

    Comment number 476.

    465.john1847-"So after decades of worrying about communist Russia & Islamic terrorism the US gov. has pressed the self-destruct button - ironic or what?"

    Those who think this government shut-down is 'the end' of the US as a world superpower, or the end at all, need to look at the number of times there have been US government shut-downs in the past 30-40 yrs.

    This sky falls quite regularly.

  • rate this
    +2

    Comment number 475.

    If US half brains blames and hates socialism out of ignorance they can borrow more from capitalistic China paying top dollar

    or they can print trillions to make their papers stack they need inflation to kick in and make a trillion worth a billion or nothing

    They've got big heads & you can't reason with them they get angry

    money in no money out = US corruption
    true to this capitalist greed game

  • rate this
    +7

    Comment number 474.

    Couldn't care less.

    MP's in this Country are getting a 10K PA pay rise and for the first time in 60 years the Red Cross will be giving out food parcels to the poor in the UK.

    THAT IS NEWS, NOT RUBBISH ABOUT THE USA

    Man up BBC and shame the Government

  • rate this
    +2

    Comment number 473.

    If there is blood on the streets ( there will be i guess if the US goes bankrupt) buy property and gold......
    Hope you people have not investeted in US shares or Bonds.....
    The Saudis will push for the Euro as new Oil currency
    The Dollar will fall and tourism will be cheap in the USA :-)

  • rate this
    +3

    Comment number 472.

    At present we are living with a bunch of bankrupt businesses, mainly banks. Their continued existence is driving all good business into collapse and is entirely destroying the propensity to save - which itself represents the essential central pillar of capitalism.

    The idiots just hope to keep their personal retirement jobs alive - but at the cost of capitalism itself.

    This is economic treason.

  • rate this
    +4

    Comment number 471.

    who needs a healthcare system so long as you can still buy guns and invade countries!

    This is just the death throes of an empire. Its happened all through history and its the Yanks time. Theyre fading away while China comes to the fore.

  • rate this
    +4

    Comment number 470.

    440 "I feel it's the duty of us British to help the USA out with their debts." Phahahaha hahahahaha my sides hurt

  • rate this
    +4

    Comment number 469.

    @453 neil
    in reply to @440
    "What has the US done to save UK?"

    Some of the Americans on here have obviously taken their history from Hollywood films.

  • rate this
    0

    Comment number 468.

    The World bank are fools. Their stupidity of trying to avoid the inevitable, just like the central bankers, has only made matters far far worse.

    Just like in did in the 1930s and the 1870s. Why do these idiots refuse to accept the economic lessons of history? It can only be their arrogance. The planet must have the debt and asset crash before we can benefit from real capitalist markets.

  • rate this
    -9

    Comment number 467.

    USA understands the evil doctrine of Socialism and Communism very well.....The fact that these evil ideas kill the and deny the human spirit of ambition and create the injustices that we see in the UK today where working people are worse off than lazy people who choose not to work as a matter of lifestyle.

 

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