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.

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

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"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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  • rate this
    -58

    Comment number 440.

    The USA are a fantastic country, I can't understand the hate. I know you're probably jealous & see them as greedy, but they do so much for world peace.

    Infact without the USA the UK wouldn't exist today. History proves that.

    I feel it's the duty of us British to help the USA out with their debts.

    And who is Jim Bong Kim? Why is he 'warning' the USA? Does he think they care about him?

  • rate this
    -48

    Comment number 108.

    If the US cannot afford a healthcare system then they cannot afford it for whatever the reason. When times are hard economies must be made, it's very simple. The funding of a healthcare system is a very, very big undertaking. Someone needs to explain this to Obama in plain language and also tell him how it will affect the whole world. With power comes responsibility.

  • rate this
    -30

    Comment number 142.

    America is the most powerful country in the world and hence we need to do all we can to avert this disaster.

    Make all debt void. The world needs a economically powerful and stable USA and without the debt we will have this.

  • rate this
    -25

    Comment number 63.

    This is down to Obama's basic weakness and inexperience. It takes more than the ability to read an autocue and give out soundbites to run a country. A strong president would have developed a concensus between the parties. Reagan, Roosevelt and Lincoln must be spinning in their graves.

  • Comment number 107.

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

 

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