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.

Start Quote

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
    +5

    Comment number 606.

    "On the other hand Obamacare penalizing Americans for not having health insurance is wrong and needs to be stopped"
    =
    what happens to paranoid Americans who can't pass the drug test Lucy?

  • rate this
    -8

    Comment number 605.

    Beware of B.H.O and beware of Red Ned in the U.K. remember that history has been re-written to blind the foolish. Socialist=Marxist=Communist= Fascist !

    Marx=Lenin=Stalin= oppression of the workers ! not freedom ! Socialist murdered more Jews than the Nazis they then starved millions in the collectives !

  • rate this
    -11

    Comment number 604.

    Disingenuous Obama has been an incompetent hypocrite from day-one

  • rate this
    +1

    Comment number 603.

    speaking as one with very little to lose, I hope the whole capital system fails and the wealthy lose everything. then again do I really care

  • rate this
    +22

    Comment number 602.

    The fact that so many people around the world are worried about this demonstrates how tied in we all are to world economics. The US government is holding the entire world to ransom over petty political issues.

    It's like a child smashing his toys so his younger brother can't have them either. It's pathetic that grown men do these things.

  • rate this
    +1

    Comment number 601.

    577.TJMGold
    4 Minutes ago
    I wish Obama and his followers would stop trying to turn America into a socialist, broke nation. This isn't Europe

    $16 trillion in debt? I would say that is well and truly broke!

  • rate this
    0

    Comment number 600.

    Lets set an example to the Governments and boycott the holidays and show an example of how to cut back when times are hard. How many of us are sick to death of the hype, over eating, spending etc each year anyway. Enjoy the family, set a new trend and get excited of finding ways of being together without the huge expense.
    Hope they are not planning on the huge Christmas tree this year!

  • rate this
    +3

    Comment number 599.

    Jim Yong Kim warnings are nothing more than chaff in the wind. One does not need a university degree to understand that the U.S will never pay off its debts nor does it have the capacity to do so. The fact remains as long as the dollar remains as the world's reserve currency, the U.S government will be borrowing from the rest of the world in perpetuity.

  • Comment number 598.

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

  • rate this
    +1

    Comment number 597.

    574.John_from_Hendon

    You know, I agree with you! You may have noticed my suggestion of a National Maximum Income (set at 20x the National Minimum Wage etc etc etc.)
    ===
    If I put in the effort to make and sell enough cuckoo clocks to earn 40x the NMW are you suggesting I should not be allowed to?

  • rate this
    -2

    Comment number 596.

    The people against Obama care know that in the long term there will be a increase in state spending on health care.This will affect military spending.If the UK had not ended its empire there would of been no money for the birth of the welfare state.
    The tea party know this and the power of the USA will be weakened with a move from guns to health care.Thats why they hate socialism.

  • rate this
    +8

    Comment number 595.

    577. TJMGold
    >>I wish Obama and his followers would stop trying to turn America into a socialist, broke nation. This isn't Europe.

    And there you have it - in a nutshell. Americans see it as "Socialist" that healthcare should be available to those without money. I agree that the UK model goes too far in some respects, but I'd rather that than a poor person died for lack of a cheap treatment.

  • rate this
    +6

    Comment number 594.

    @577 TJMGold
    "Nobody wants this crap (Obamacare).......This isn't Europe"

    You're damn right it's not.Europe is a bit more civilized.

  • rate this
    +1

    Comment number 593.

    You can expect the U.S. to go down in flames.

    Obama is fiscally, totally irresponsible. Period.

  • rate this
    +4

    Comment number 592.

    They are drowning in their hundreds in The Med.
    .
    Just trying to get to the West, for a better life.
    .
    Do you think someone ought to tell them?
    .
    Time to put an end to the madness, time to call a halt.
    Those who make it have long been arriving by the boat loads at a small island in Italy, putting a massive strain on the locals, on Italy, and the EU.
    .
    Another fine mess, but no attempted solution.

  • rate this
    +1

    Comment number 591.

    It is perfectly possible for the US to eat itself from within. The fundamentalists should understand that - it's in the Bible.
    A trading economy is an empathetic construct - it provides help and rewards people...
    Simple really.
    Without empathy, it all becomes worthless.
    Profit is just a way of abstracting (and standardising for comparison) the benefit from your contribution.

  • rate this
    +7

    Comment number 590.

    Thank you America, you are always there to make me feel better when I start to think my government system is full of idiots

  • rate this
    +3

    Comment number 589.

    How bad do things have to be before Joe public wakes up. Marshal law, re-education camps, bodies in the streets? At what point does the average person think maybe they have been duped? Kind of expect it in the UK. We think its fine that one family have untold houses and land and privilege whilst some struggle for the basics. The plebs even come out and celebrate their oppressors.

  • rate this
    0

    Comment number 588.

    Third world countries like India will suffer the most in the event of a default by the U.S. If Western economies start collapsing then what will happen to the global economy? People all over the world are suffering excruciating physical and mental pain with no end in sight to their sufferings. The Afghanistan and Iraq wars have brought the U.S. to its knees. The terrorists seem to be winning.

  • rate this
    0

    Comment number 587.

    576.hellblazer
    There is risk in everything. Desperate governments will seize your bank arround, and pension fund, before your gold. See Cyprus.
    I prefer silver :)

    557.LagerSocialist
    Why do you confuse Capitalism (you choosing who deserves your money), with Cronyism (government removing your choice, and picking who is worthy in the market of your wages for you)?

 

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