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
    +6

    Comment number 506.

    I forgot to say that "creative destruction" is part of this game - international capitalism is exploitative and brutal. An economic car-crash is an opportunity for private investors to buy assets cheaply.
    The political and investor elites are the same.
    Now they want to monetise the US govt!
    Bet Goldman's vampiric squid is first to the trough.

  • rate this
    +7

    Comment number 505.

    Typical Americans, can't do anything right!

    Let's not take care of everyone with Universal Healthcare because we are not Christian and don't care a hoot for our neighbours.

  • rate this
    +12

    Comment number 504.

    I wonder if Americans realise they are the laughing stock of the world.
    People running the show who have a single digit IQ and rabid fundamental views that match those of radical Islam.
    Horrifying especially for those ordinary folk whose lives have been ruined while the rich go berzerk in a frenzy to hold on to power.
    Like all corrupt powers of the past, the end is nigh....

  • rate this
    +4

    Comment number 503.

    The current economic system is dependent on the consumption of individuals to generate demand for industry. If a significant part of that demand is from welfare, any cuts to welfare WILL have a knock on effect on industry. It needs to be offset by increases to minimum wage levels, employment opportunities for those whose income falls as a result of welfare cuts.

  • rate this
    +9

    Comment number 502.

    If the US cut its military from 682billion to 182billion a year it would still have the largest defense budget in the world, and would be just as safe.
    To give some idea that other 500billion per year over less than a decade could have provided fallout shelters for every family in the US and actually would have made them safer than providing welfare to the military industrial contractors.

  • rate this
    +6

    Comment number 501.

    @486 Nelson

    " just who are the poor in our country? "

    You'll find out when the brownstuff hits the fan and they are kicking your doors in to take your food and anything else they need. You'll whimper then and wish you'd helped to create a better system.

  • rate this
    -1

    Comment number 500.

    482 John

    Those who have lived long enough to acquire some experience would agree with your commonsense posting.

    Running a country is no different to running a household. After all we are all people and families know that you can't spend what you haven't got. All else is folly leading nowhere but the poor house

    After the death of fascism and communism it is now the turn of capitalism

  • rate this
    +1

    Comment number 499.

    477.Dragonwight-"...Bush...spent $10tril. on his...war on terror, imagine if he had instead chose a more measured approach ...USA wouldn’t be facing bankruptcy..."

    Current debt c.$17tril. & Wiki -'The most recent major report on these costs come from Brown University in the form of the Costs of War project, which said the total for wars in Iraq, Afghanistan, & Pakistan is at least $3.2-4 tril.'

  • rate this
    +1

    Comment number 498.

    Problem is the US wants to raise their Debt Ceiling for the SEVENTY NINETH TIME , once again,into cloud-cuckoo land, but no longer have the assets to cover their debts
    You might want to spend 5-10 minutes looking at this
    Gentlemen "I now declare the USA as Bankrupt"
    http://www.usdebtclock.org/

  • rate this
    +7

    Comment number 497.

    The financial crisis was largely driven by bad practices within the USA. Bad banking practices world-wide and incompetence in other govts made it worse. Now we have some crazed political cult in the USA causing chaos and threatening the world in a similar way. Isn't it about time the rest of the world insisted that the USA puts its house in order before it goes rampaging around in other countries?

  • rate this
    +11

    Comment number 496.

    467. NELSON1805

    ' ... the evil doctrine of Socialism and Communism ... the UK today where working people are worse off than lazy people who choose not to work as a matter of lifestyle.'

    That isn't Socialism.
    It's called 'BeingStupidEnoughtoBelievetheDailyMail-ism'

  • rate this
    +7

    Comment number 495.

    Bring it all down. This system is corrupt and broken. An entire world held to ransom because a small group of rigt-wing zealots in septic-tankville don't want the poor to receive adequate free health care, makes you sick to the core.

  • rate this
    +5

    Comment number 494.

    We bring the country down because we do not want health care for ordinary people?!

    Who wants a country with that moral compas leading the World!!!!!!!!!!!

  • rate this
    +5

    Comment number 493.

    America had to shut down.... :(

    Shame it was not PERMINENT :)

    That would be worthy news to celebrate

    Woop Woop

  • rate this
    +3

    Comment number 492.

    The plan is to default on their debt, google Obama advisors and you will hear for yourself they are going to crash the dollar. Why do you think ther is over 800 FEMA camps/prisons all across US just waiting to be filled, because they will be hell on the streets. Hold onto your seats its going to be a bumpy ride!.

  • rate this
    -2

    Comment number 491.

    449. Base your point on a someone said, both what someone said and your point is a lot of nonsense. Yes you can get bad fruit on a good tree, and so your point is lost. You cannot work God out by logic he is above your and my understanding, if he is holding the universe in his hand and right at this moment creating stars in the universe billions of miles away then hes way above our understanding.

  • Comment number 490.

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

  • rate this
    +4

    Comment number 489.

    What the World needs is "leadership". What it also needs is "good" governance.
    .
    What we get is neither.
    .
    For what we are continue to receive may your Lord make you truly thankful!
    .
    Here, we apparently get taken further into debt so that our leaders can give it away abroad - they can help others but not our own elderly or sick.
    .
    The West is not a land of Milk & Honey, it's a debt ridden mess.

  • rate this
    +5

    Comment number 488.

    @420. NELSON1805

    Assuming that you are an American and of course subscribing to Tea Party's lunatic thoughts, people such as you do NOT care about country's well being. You people are running a fool's errand and are BLIND to ALL proven principles. You also discard economic data.

    What you are doing is NOT democracy - it is NOTHING short of anarchy and should be termed as a TREASON.

  • rate this
    +4

    Comment number 487.

    477.Dragonwight
    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.
    =
    Imagine how much more again they'd save, and how much less terrorism there'd be, if they closed down their 300+ military bases abroad!

 

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